(What’s Left of) Our Economy: The New Data Contain More Good Trade News for Trump – & the Economy

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China, economic growth, GDP, goods trade deficit, gross domestic product, Made in Washington trade deficit, manufacturing, merchandise trade deficit, non-oil goods trade deficit, Trade, trade deficit, Trump, {What's Left of) Our Economy

The most reasonable conclusion to draw from today’s new U.S. trade figures (which cover February) is that, although evidence keeps growing that President Trump’s trade policies are returning to a success track, even only a fairly clearcut verdict won’t be possible until the March numbers come in.

The reason? By then, we’ll get at least the preliminary official read on the gross domestic product (GDP) for the first quarter of this year, and that will enable some significant light to be shed on a crucial (but almost completely ignored) measure of the Trump trade record – whether on his watch so far, the economy has been able to break or at least change the relationship between the growth of various measures of the trade deficit on the one hand, and overall economic growth on the other.

The answer matters because most economists have long insisted that an expanding economy and an improving trade balance almost never coexist. That claim is belied by the data, but the belief persists.

Further, good growth accompanied by better trade numbers would be of much more than academic interest. For the weaker the relationship between the worsening of the trade deficit and the growth of the economy, the more American growth would be stemming from domestic production, rather than domestic spending and borrowing, and vice versa.

As of the middle of last year, the economy had shown signs of notable progress along these lines. But in the last few months, as serious Trump tariffs on metals and especially on goods from China came on stream, the data started being distorted by front-running – i.e., importers rushing to procure affected goods before the levies kicked in and their prices rose.

Last month’s trade statistics contained important signs that these effects were ebbing, and the trend continued this month.  (A second distortion, however, is influencing these results – the China business slowdown that takes place each year with the arrival of the spring holiday.) All the same, January’s initially reported 14.61 percent monthly drop in the total trade gap (the biggest such decrease since March) was followed by a 3.43 percent decline in February (and from a January level that was revised down slightly). And at $49.38 billion, the overall trade shortfall was the smallest for a single month since last July’s $51.44 billion.

Meanwhile, the total two-month fall-off in the total trade gap (17.56 percent) was the biggest such decrease since March-May, 2015 (20.50 percent). And this is where we come to the main unknown: How do these instances of trade deficit shrinkage compare with the economy’s overall performance? Although Washington doesn’t track GDP on a monthly basis, it’s worth noting that from the second quarter of 2015 to the third quarter (the period roughly corresponding with that earlier trade deficit narrowing, growth on a pre-inflation annualized basis was 1.40 percent.

What about such growth during the first part of this year? That’s the figure we’ll need to wait for until later this month. At the same time, even then, an even more important question will remain unanswered for a while longer: Can the combination of an improved trade performance and continued growth last? In 2015, it was short-lived. Indeed, the current dollar U.S. economic growth rate in full-year, 2016 (2.44 percent) was less than half of the full-year, 2015 pace (5.07 percent). Unfortunately, the durability of this trend won’t be known for many more months at a minimum.

Nonetheless, there’s an even more rigorous test that the Trump trade policies need to pass – whether they can manage to maintain healthy overall economic growth while encourage a reduction in that portion of the U.S. trade deficit that’s strongly influenced by trade policy decisions in the first place. As known by RealityChek regulars, that Made in Washington trade deficit strips out oil (because it’s almost never the subject of trade policymaking) and services (because trade liberalization of that activity remains in its infancy). On this front, signs of Trump trade progress haven’t shown up yet.

From January-February, 2017 (a period during which the Trump presidency began) to January-February, 2018, this Made in Washington deficit rose at the considerable pace of 18.47 percent. On the imperfect first-quarter-to-first-quarter basis, pre-inflation GDP was up 4.58 percent. That ratio was actually worse than during former President Barack Obama’s last year in office. Then, GDP expanded by 4.09 percent but the Made in Washington deficit actually dipped – by 0.50 percent.

As with the overall trade deficit, the Obama years sometimes witnessed strong economic growth during which the Made in Washington trade deficit worsened only moderately. For example, between the first quarters of 2011 and 2012, current dollar GDP improved by 4.80 percent and the Made in Washington trade deficit only widened by 9.80 percent. But growth slowed sharply thereafter. The January-February, 2009 to January-February, 2010 period was another time of Made in Washington trade shortfall shrinkage – by 3.13 percent. But GDP climbed by only a weak 2.27 percent.

Between January-February 2018 and January-February 2019, the Made in Washington deficit was up by a modest 2.48 percent. Can respectable growth be maintained? Tune in.

In the meantime, legitimate encouragement from the February trade figures can be drawn from the nature of the improvement. Sequential combined goods and services import growth was just 0.23 percent, while exports rose 1.13 percent – nearly five times faster.

On month, the Made in Washington deficit shrunk by 1.96 percent. That improvement combined with its 10.01 percent sequential drop in January made for the biggest such two-month decrease (11.86 percent) since that March-May period of 2015 (13.36 percent).

Good news came on the China trade front as well. February saw the biggest month-to-month reduction in the chronic, immense U.S. goods deficit with the People’s Republic (28.17 percent) since February, 2017 (36.04 percent). In addition, the resulting two-month decline in this trade gap (32.77 percent) was the biggest such figure since January-March, 2013 (36.16 percent) and the second biggest going all the way back to October-December, 2001 (39.87 percent).

An 18.21 percent surge in American merchandise exports helped (especially since it followed a 22.31 percent monthly plunge). But the 20.21 percent monthly falloff in the much greater amount of goods imports was the biggest contributor – and represented the biggest such decrease since February, 2017 as well, not to mention the second biggest since recessionary February, 2009 (23.84 percent).

February’s manufacturing trade performance was excellent as well – relatively speaking, of course, since the deficit remains enormous in absolute terms (topping $1 trillion last year).

But industry’s trade gap plummeted by 20.02 percent on month in February, as exports rose 1.85 percent and imports sank by 9.14 percent. And the gap shows signs of stabilizing on a year-on-year basis as well, as it’s up a mere 0.37 percent during the first two months of this year compared with the first two months of 2018.

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(What’s Left of) Our Economy: New Trade Figures Indicate Trump Progress Back on Track

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Census Bureau, China, exports, imports, manufacturing, real trade deficit, tariffs, Trade, trade deficit, trade war, Trump, {What's Left of) Our Economy

Of course it’s a coincidence – but what a coincidence! The same week that the Special Counsel and the Attorney General have issued highly favorable reports about President Trump’s alleged campaign collusion with Russia and related obstruction of justice charges, the Census Bureau has issued a monthly U.S. trade figures report full of evidence that the President’s tariff-centric policies have resumed making progress toward one of his major promises to voters: bringing America’s chronic, gargantuan, and growth- and jobs-killing trade deficits under control.

Even better, this trade deficit progress has come as the economy continues to grow – once again contradicting the economic conventional wisdom that trade deficits only shrink when the economy weakens and even falls into recession.

Today’s trade figures (for January) revealed monthly improvements in the combined goods and services and China trade flows big enough to establish numerous multi-year bests and even a new all-time record. Moreover, they cleaned up some (but not all) of the short-term statistical noise created by Mr. Trump’s recent levies on imports from China. This conclusion is clear from the large number of trade flows in which much better results in trade balances, and in exports and imports, followed comparably dismal results in December.

Let’s start with the overall figures. In January, the nation’s total trade gap narrowed month-to-month by the greatest extent (14.61 percent) since last March (14.84 percent). This drop-off came right after the biggest such increase in the trade shortfall (18.55 percent) since March, 2015’s 35.63 percent nosedive.

The deficit in goods – which represent the vast majority of U.S. two-way trade, and which has attracted special attention from President Trump – experienced its biggest sequential decrease in January (10.10 percent) since March, 2016’s 11.82 percent decline. And this plunge again followed an unusually big monthly increase in December – 12.30 percent, the largest since March, 2015’s 21.35 percent.

At least as interesting, given the seasonality of much U.S. trade: The combined goods and services trade gap narrowed on a January-January basis for the first time (3.66 percent) since 2014 (5.27 percent). As for the goods deficit, its drop between the last two Januarys was only the first since 2016. But the magnitude was much bigger (2.77 percent versus 0.83 percent).

Also important: The January trade deficit progress came partly from stronger exports, not simply falling imports.

The January on-month export rise (0.95 percent) was the strongest since September’s 1.52 percent. The increase in merchandise exports (1.31 percent) was also the biggest since September (when they advanced by 2.02 percent sequentially).

Yet the same kind of possible mean reversion was visible in these accounts as well. For the new export gains came right after the biggest goods and services export decline (1.88 percent) since January, 2016’s 1.98 percent. And the merchandise exports increase also followed their biggest decrease (2.87 percent) since January, 2016 (4.11 percent).

As for imports, in January, the overall total sank sequentially by its greatest extent (2.56 percent) since November’s 2.76 percent. And the goods imports monthly fall-off (2.97 percent) was the biggest since February’s 2.38 percent.

Here, too, however, the January results amounted to sharp reversals of the December figures. For overall trade, December saw the biggest monthly import rise (2.36 percent) since February’s 2.49 percent. For goods trade alone, the comparable drop was bigger (2.97 percent), but that result in turn directly followed a 3.45 percent sequential decline November.

The impact of Mr. Trump’s trade policies is even more apparent from examining trade flows minus oil and services. Since the former is rarely the subject of trade diplomacy or policymaking, and liberalization in the latter is still in early stages, the remaining trade in non-oil goods represents the U.S. foreign commerce most directly influenced by trade policy decisions.

In January, the non-oil goods deficit (which RealityChek regulars know can be called the Made in Washington trade deficit) recorded its biggest month-to-month decrease (10.01 percent) since March, 2016’s 10.93 percent. And revealingly, the improvement followed the biggest sequential widening of the non-oil goods trade gap (12.03 percent) since March, 2015 (27.52 percent).

Adjusting non-oil goods trade flows for inflation matters greatly, because these so-called real results are used to calculate the most widely followed statistics tracking the growth (or shrinkage) of the entire economy – the after-inflation gross domestic product (GDP). But the adjustment doesn’t change the story significantly.

As with the non-price-adjusted data, the January drop in the real non-oil goods deficit (also 10.01 percent) was the biggest sequential decrease since March, 2016 (10.85 percent). But December’s 12.40 percent monthly increase was the biggest since March, 2015’s 29.55 percent.

America’s bilateral goods trade deficit with China – its largest bilateral merchandise shortfall by far – in January hit its lowest monthly level ($34.47 billion) since June ($33.48 billion). In addition, on a January-January basis, this trade gap recorded its first decline (4.13 percent) since 2016’s 0.64 percent. In addition, the January-January decrease in strongly seasonal U.S.-China goods trade was only the second since 2010.

This China deficit improvement came despite the lowest monthly level of American goods exports to China ($7.13 billion) since September, 2010’s $7.11 billion. In addition, the scale of the January sequential export decrease (22.31 percent) was the biggest since last January’s 27.92 percent.

Nonetheless, blaming the trade war and China’s retaliatory tariffs on U.S. goods probably doesn’t tell the entire story. After all, between the previous two Januarys – well before Mr. Trump’s initial tariffs – U.S. goods sales to the PRC plummeted by 32.70 percent on month.

The China goods import figures do seem strongly trade war-related. American merchandise purchases from China in January ($41.60 billion) were the lowest since April ($38.23 billion). Much more revealing: The January-January shrinkage in goods imports from China (9.14 percent) was the biggest reported since 1985, when this data series began. Moreover, it was only the second such decrease since recessionary 2009 – when the fall-off was only 5.53 percent. (Between January, 2015 and January, 2016, such imports also fell – but by a much smaller 3.74 percent.)

Oddly, since manufacturing dominates U.S.-China trade, the huge global American manufacturing trade deficit actually rose on month in January – from $87.35 billion to $89.13 billion, or 2.04 percent. U.S. manufactures exports were down 5.10 percent sequentially in January, while imports were off by only 1.59 percent.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: The New U.S. Trade Figures are (Nearly) All About China

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

Today was one of those days when the U.S. government treated us with both the jobs numbers (for October) and the trade numbers (for September). But just because I posted on the former first doesn’t mean that the latter were humdrum – far from it. And the big story in so many ways was China – along with an important black mark revealed when trade flows are adjusted for inflation.

Specifically, the combined American goods and services trade deficit hit $54.02 billion – just 1.33 percent higher than August’s upwardly revised $53.31 billion, but the second highest monthly total during the current economic recovery. (The highest was February’s $54.96 billion.)

And the prime culprit was the 4.34 percent sequential increase in the immense, chronic U.S. merchandise trade gap with China – to a record $40.24 billion level that represented the third straight monthly all-time high.

This growth means that as of September, this trade shortfall is running 9.91 percent ahead of last year’s annual total – $375.58 billion, which so far has been the record. Also at all-time highs as of September: American goods imports from the People’s Republic. They topped the $50 billion monthly mark for the first time, and were up by 4.32 percent sequentially – possibly because many American companies were rushing their purchases from China ahead of tariffs.

U.S. merchandise exports to China were of course much lower – $9.79 billion in September. The figure was the year’s second lowest (after August’s $9.29 billion) and might have reflected some Chinese front-running of their own government’s retaliatory levies against the United States – although September’s 5.32 percent monthly increase followed a 9.43 percent sequential drop in August.

Contrasting with these China numbers were the September goods trade results with other U.S. trade partners. Specifically, the shortfalls with the European Union, the Eurozone, Germany, Japan, South Korea, Mexico, and Canada all narrowed, and by substantial percentages. Moreover, the China-heavy American manufacturing trade deficit declined as well – by 6.13 percent (albeit from a $92.51 billion August total that was a monthly record).

Moving up to the 30,000-foot level, combined U.S. goods and services exports rose by 1.49 percent, to $212.57 billion, from an August figure of $209.46 billion that was revised upward fractionally. That September total was the third highest ever – after the May and June levels of $214.67 billion and $213.20 billion, respectively.

The much greater amount of overall imports was up 1.46 percent on month in September, with the $266.58 billion figure marking a second straight all-time high. (The previous month’s record of $262.75 billion was revised fractionally higher as well.) So some pre-tariff front-running of purchases from abroad looks like it was at work here, too.  

Some other all-time monthly highs achieved in September: services exports ($70.71 billion – a second straight record as well) and services imports ($47.50 billion).

That black mark? The Made in Washington trade deficit. This is the trade shortfall comprised of flow heavily influenced by U.S. Trade agreements and related policy decisions. As such, it leaves out oil and services – since trade in those sectors is in only a very early stage of liberalization. And adjusting it for inflation enables calculating how much trade has been either contributing to or subtracting from after-inflation growth – the measure of the gross domestic product (GDP) that’s most widely followed.

From the start of the current economic recovery, in mid-2009, through the second quarter of this year, the increase in the price-adjusted Made in Washington trade deficit subtracted 14.89 percent from the period’s cumulative real economic growth of $3.3775 trillion. That’s a trade drag of $502.92 billion.

As of the third quarter, the drag increased to 16.60 percent of cumulative recovery inflation-adjusted growth of $3.5374 trillion. That amounts to $587.23 billion worth of lost growth.

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

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

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

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

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

What’s been going on? As widely reported, both American exporters and importers have been rushing shipments of goods to each other’s markets in order to beat the tariffs at home and abroad that have been actually imposed or threatened. During the second quarter, the biggest rush was made by U.S. exporters – their shipments overseas jumped by 3.21 percent quarter-to-quarter on an annualized basis. That was the biggest surge since the 3.93 percent annualized rise in the fourth quarter of 2013. That’s largely why the trade deficit narrowed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: 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.

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: The 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: The Real Deal with the U.S.-Canada Trade Balance

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aerospace, Canada, China, crude oil, dairy, energy, Justin Trudeau, lumber, natural gas, subsidies, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

Extra! Extra! Read all about it! The nation’s globalist political and media classes have gotten it right on a major U.S. trade policy issue!

I’m talking about the numerous complaints issuing from American politicians, journalists, talking heads, and purported academic and think tank experts about President Trump’s decision to make Canada the focus of so much of his trade-related ire.

Mr. Trump is right about Canada maintaining sky-high tariffs and lavish subsidies in certain sectors of its economy, like dairy and lumber. (I’d add aerospace to this list.) But the idea that Canada represents one of America’s biggest trade headaches, and has been taking advantage of the U.S. economy left and right due to poorly negotiated trade deals, is completely belied by the numbers. And P.S. – it’s not even necessary to point to America’s services trade surplus with its northern neighbor to debunk the numbers.

The keys are recognizing the immense role played by energy in bilateral goods trade. Commerce in crude oil and natural gas is almost never the subject of the U.S. trade deals and broader trade policy decisions that the President – for the most part – has correctly lambasted.

Energy’s predominance is most apparent when U.S.-Canada trade in goods is calculated according to the measures used most prominently by the American government – total exports, and general imports. In fact, these headline data show that the U.S. oil and gas shortfall has typically been twice the size of the overall American merchandise trade deficit with Canada – meaning that when it comes to other goods (like manufactures) the United States has been running a surplus.

For example, in 2009 (the year the current U.S. economic recovery began), according to these figures, the United States ran an overall $20.18 billion goods trade deficit with Canada, a $45.75 billion deficit in crude oil and natural gas, and a $30.02 billion surplus in manufacturing.

Last year, the overall U.S. merchandise deficit with Canada had fallen to $17.50 billion – largely because the energy deficit had sunk to $16.45 billion. And the American manufacturing surplus reached $41.07 billion.

As many trade policy critics have rightly pointed out, the total exports and general imports numbers aren’t the best data for measuring U.S. bilateral trade balances. (They’re fine for America’s global trade balances, though, as the discrepancies that emerge in the bilateral accounts cancel each other out on a worldwide scale.) Instead, the most accurate picture is provided by looking at domestic exports and imports for consumption – i.e., the trade flows that concentrate on exports that are actually made in America (as opposed to being transshipped through the United States from countries where they originated), and on imports that Americans actually purchase for their own use (as opposed to products being transported through the United States to their final destinations).

But although these statistics reveal a much larger U.S. merchandise gap, along with deficits in manufacturing, oil and gas predominate in these figures as well. In 2009, the domestic exports etc numbers show a total American goods trade deficit with Canada of $52.89 billion – nearly 87 percent of which was in oil and gas. The manufacturing shortfall, moreover, was tiny – only $200 million.

By 2017, according to this measure, the annual U.S. goods deficit had risen to $64.84 billion. But the oil and gas deficit – which had shrunk dramatically in absolute terms due to the U.S. energy production revolution – still comprised a little over 73 percent of this total. And the manufacturing deficit was only $4.28 billion (out of a U.S. global total of more than $937 billion).

I can understand why President Trump views Canadian Prime Minister Justin Trudeau as a pro-globalist showboat. I agree. But when it comes to trade, and turning it into an engine of growth and domestic job creation, Mr. Trump has much bigger fish to fry – starting with the thoroughly and increasingly predatory trade policies pursued by his “good friend,” Chinese leader Xi Jinping.