(What’s Left of) Our Economy: A Strange U.S. Monthly Trade Report Even by 2020 Standards

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Agence France-Presse, Boeing, China, goods trade, goods trade deficit, manufacturing, manufacturing trade deficit, merchandise trade, services trade, Trade, trade deficit, {What's Left of) Our Economy

Because the economy, its strengths and weaknesses, and the policy issues they raise haven’t disappeared despite, yesterday’s outrageous attack on the U.S. Capitol Building, I’m reporting as usual in detail on this morning’s monthly international trade figures (for November).

But a first read of the data, anyway, reveals something pretty unusual (aside from the now-standard CCP Virus- and lockdowns-related distortions) – the 7.97 sequential increase in the combined goods and services deficit, to the second biggest monthly level ever, came from a very large number of sources. And some of the biggest standard culprits (including recent problem sectors like services) played a very minor role.  

At the same time, it’s important to remember that the makeup of that all-time worst overall monthly trade gap ($68.28 billion, in August, 2006), was completely different from the latest $68.14 billion total in that 38.31 percent consisted of oil. The latest trade data show a small oil surplus. That change has major policy implications, since (as known by RealityChek regulars), it means that now the entire trade shortfall in goods (the bulk of the overall deficit) comes in those flows heavily influenced by trade policy. And we’ll get back to that “Made in Washington” portion of the trade gap below.

The November figure brought the year-to-date total trade deficit figure to $604.82 billion – 4.85 percent bigger than last year’s counterpart of $576.85 billion. As a result, the December results are certain to produce a new annual record (currently held by 2018’s $579.94 billion).

Nevertheless, this projected figure as a share of the total U.S. economy (measured as pre-inflation gross domestic product or GDP) would be well below 2006’s record of 5.58 percent, and could trail some levels hit in the 2010s.

Meanwhile, the goods, or merchandise, trade deficit hit its own all-time high in absolute terms (not the relative terms described immediately above), with the $86.36 billion level topping August’s $83.90 billion. And the November surplus of $18.21 billion represented the worst monthly services trade performance since August, 2012’s $17.08 billion.

The rise in the November overall trade deficit stemmed entirely – and then some – from the 2.94 percent increase in total imports from $245.11 billion to $252.32 billion. And worsening goods imports were just about the whole story, growing 3.04 percent sequentially from $207.76 billion to $214.08 billion. Total exports improved by 1.19 percent, from $182.00 billion to $184.17 billion.

As suggested above, the “Made in Washington” trade deficit (which strips out not only oil, but services, since the former is almost never the focus of trade policy, and liberalization in the latter remains embryonic globally) hit a new monthly record, too. The $85.70 billion November figure was 5.54 percent higher than October’s $81.20 billion total, and slightly exceeded August’s previous $84.65 billion all-time high.

Standing at $830.21 billion to date this year, this trade gap, too, will certainly top the annual record of $840 billion set in 2019.

Strangely, though, two of the biggest historical pieces of the trade deficit – the China goods and manufacturing gaps – were little changed on-month in November.

The former increased by 1.90 percent month-to-month, to $30.68 billion, as U.S. exports fell slightly and the much greater amount of imports increased fractionally. Moreover, year-to-date, this deficit is down 11.51 percent year-to-date, making clear that the Trump tariffs have diverted trade to countries that much friendlier politically, and much less predatory economically.

More evidence for this proposition – and for the overall economic success of the Trump levies: As recent news accounts of China’s official trade figures continually emphasize, the People’s Republic’s global goods exports have been booming lately. This Agence France-Presse article reported that China’s November goods exports represented a 21.1 percent jump on a year-to-date basis, and its merchandise trade surplus surged 29.06 percent on-month.

But if the U.S. November data are to be believed, almost none of this Chinese growth – and, most significant, its trade-fueled economic growth – has been achieved at America’s expense.

The even more chronic and much bigger manufacturing trade deficit actually declined slightly on month in November – by 1.74 percent from October’s record $110.20 billion. But at $108.28 billion, this monthly trade shortfall was still the second biggest of all time.

Year-to-date, the manufacturing trade gap stood at $1.00626 trillion – 5.83 percent bigger than last year’s $950.86 billion. As a result, the 2020 annual figure will certainly break last year’s record $1.03314 billion. But it will be important is by how much, since this trade deficit’s annual growth has slowed markedly since 2013 – from 11.78 percent in 2014 to 1.31 percent in 2019. In fact, as previously reported here, if not for Boeing’s safety woes crippling the trade performance of the big surplus-generating aerospace sector, the 2019 manufacturing trade deficit would have barely worsened at all.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: CCP Virus-Era U.S. Trade Figures Continue to Astound

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

Meet the new third quarter U.S. gross domestic product (GDP) figures. Practically the same as the old third quarter figures – including on the trade front. The nearly identical 33.1 percent inflation-adjusted annualized growth revealed in today’s second official look at the economy’s performance between July and September remains as meaningless in terms of the fundamentals as it is breathtaking.

After all, it’s completely distorted by the CCP Virus pandemic and resulting shutdown-like decisions and altered consumer behavior that now seem likely to end sooner rather than later due to recently announced vaccine progress. (More industry-specific shifts involving sectors like higher education and business travel and real estate and on-line shopping and the like? They’re of course shaping up as very different stories.)

But it’s worth reviewing the trade highlights of this morning’s figures (and the very similar numbers reported last month) to show just what incredible statistical outliers the pandemic and the government and consumer responses have produced.

The after-inflation quarterly trade deficit came in at $1.0164 trillion at an annual rate – a little worse than the $1.0108 trillion initially estimated. But that’s a staggering 31.13 percent increase from the second quarter total of $775.1 billion – a jump that positively dwarfs the previous record increase of 13.18 percent between the first and second quarters of 2010.

And keep in mind that jump came as the nation was rebounding from the Great Recession – which at that point was its worst economic slump since the Great Depression. Indeed, as reported last month, that quarter’s annualized growth rate was only 3.69 percent – only about a ninth as strong.

Because this year’s third quarter real trade deficit increased slightly while the economy’s growth remained essentially the same (for the record, the new GDP increase number was fractionally smaller than last month’s advance read), the hit to growth from that trade gap rose as well. Its subtraction from growth is now judged to be 3.18 percentage points, not 3.09. Only the 3.22 percentage points cut from growth in the third quarter of 1982 have bit deeper in relative terms.

The bigger trade deficit figure resulted from total imports that rose faster than exports. Last month, the Commerce Department estimated that the former were 12.42 percent greater than the second quarter level. Now the increase is pegged at 12.56 percent. The previous quarterly total import growth figure – which in absolute terms is much bigger – has been increased from 17.58 percent to 17.89 percent.

But where these changes stand in U.S. trade history is nothing less than stunning. The quarterly total import data go back to 1947, and their growth in the third quarter of this year was the strongest since the 21.88 percent recorded in the second quarter of 1969.

The quarterly total import statistics also began in 1947, and on this count, the third quarter’s increase was the worst since the 23.47 percent surge in the third quarter of 1950. These latest trade performances are all the more eye-opening upon realizing that overall U.S. trade flows in 1969 and 1950 were so much smaller than they are today, meaning that big percentage increases were much easier to generate.

The quarterly real trade figures for goods and services individually only go back to 2002, but although the timeframes are much shorter, they’re equally special. During the third quarter of this year, the sequential improvement in goods exports is now reported as 19.60 percent. That’s an all-time high that far surpasses the next best performance – the 6.94 percent advance achieved in the fourth quarter of 2009, during the recovery from that previous Great Recession.

Goods imports in the third quarter soared by 20.08 percent – again dwarfing the previous record of 5.67 percent not-so-coincidentally also recorded in that fourth quarter of 2009.

The story with services trade – which has received an historic blow both nationally and globally from the virus and the shutdowns – interestingly is somewhat less dramatic for the third quarter. Constant dollar services exports only inched up by 0.21 percent in the third quarter, from $582.1 billion annualized to 583.3 billion. These industries clearly are still reeling from the 20.27 percent sequential export collapse they experienced between the first and second quarters, and the 5.67 percent drop between the fourth quarter of 2019 and the first quarter of this year. As a result, these exports in real terms are sitting at their lowest levels since the second quarter of 2010.

Price-adjusted services imports rose a much faster 5.91 percent after inflation between the second and third quarters. But that increase was only the second biggest on record – after the 7.04 percent jump in the third quarter of 2003. These more modest historical changes reflect the impressive growth in services trade for most of this century – albeit from a base much smaller than that of goods trade.

Please keep in mind that the individual goods and services trade figures still don’t add up to the totals, as I first reported in September. But they’re not that far off, either, which means that the overall third quarter numbers still seem reliable enough, and still confirm how unusual CCP Virus-era trade flows have been – and are likely to be until the nation reaches the Other Side.

(What’s Left of) Our Economy: Through the Pandemic Fog, Signs of Trump Trade Progress Keep Coming

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(What's Left of) Our Economy, aircraft, Boeing, CCP Virus, Census Bureau, China, coronavirus, COVID 19, exports, goods trade, healthcare goods, imports, Made in Washington trade deficit, manufacturing, manufacturing trade deficit, medical devices, non-oil goods trade deficit, pharmaceuticals, services trade, tariffs, Trade, trade deficit, trade war, Trump, Wuhan virus

Proof positive that much of the U.S. government grinds on whatever the political tumult surrounding it: Despite the controversies that erupted due to the largely unexpected, still-incomplete, and increasingly contested Presidential election results, the Census Bureau nonetheless still put out the new monthly U.S. trade report yesterday – this one taking the story through September.

And by the bizarro economic standards of the bizarro CCP Virus era, the figures were strangely normal: The various September deficits remained awfully high given an economy whose levels are still markedly subdued despite a powerful growth rebound in the third quarter (which ended in September). Yet although these results have been widely interpreted as a stinging rebuke to effectiveness of President Trump’s tariff-centric trade policies (see, e.g., here and here), widely overlooked details reveal major mitigating developments – and resulting reasons for continued encouragement.

As for the awfully high deficits: The combined goods and services trade gap actually decreased on month by 4.73 percent, from a downwardly adjusted $67.04 billion to $63.86 billion. Yet this monthly total (during a troubled economic time) was still firmly in the neighborhood of trade shortfalls during the bubbly mid-2000s, when Washington’s trade policy was about as cluelessly import- and especially China-friendly as possible.

Moreover, back in those days, oil made up a much bigger share of the total goods deficit than today. So obviously, most of the remaining gap owes a good deal to U.S. trade policy decisions – as will be seen below.

Encouragingly, total U.S. exports to a world still largely struggling with virus-related downturns of its own were up 2.55 percent sequentially in September, and registered their best performance ($176.35 billion) since March – just as major pandemic effects were taking hold. Total September imports of $240.22 billion also represented the highest amount ($240.22 billion) since March, but the monthly increase was only 0.51 percent. And where export growth has consistently been strong since May, import growth has begun slowing markedly.

Yet the persistence of high combined goods and services U.S. trade shortfalls stems mainly from problems with services trade that are clearly CCP Virus-related. For example, the longstanding services surplus (which of course includes travel services) is on track for its biggest drop since recessionary 2001. So far, through the first three quarters of 2020, it’s sunk by 20.47 percent on a year-to-date basis.

Indeed, the $43.96 billion reduction in the services surplus has been greater than the $38.54 billion increase in the overall deficit – meaning that if the service surplus had simply remained the same, the total deficit would have declined year-to-date (although still less than expected at least during a normal deep recession).

As indicated above, however, the total trade numbers don’t tell the whole story about the successes or failures of trade policy. That’s because, as known by RealityChek regulars, services are one huge sector where trade agreements and similar decisions have had relatively little impact so far. Ditto for oil

At first glance, examing trade flows that are substantially “Made in Washington” also reveals a nice-sized monthly September reduction in that deficit (4.62 percent), but to a level that’s the third worst on record ($80.74 billion) – just behind the August and July totals, respectively. And on a year-to-date basis, the Made in Washington deficit is up 3.80 percent from last year,to $663.55 billion.

Yet here’s where another detail comes in. This entails the woes of Boeing, which have spread beyond the safety debacle stemming from crashes of its popular 737 Max model to the global virus-induced collapse in air travel.

The safety problems of 2019 cut the longstanding U.S. civilian aircraft trade surplus by nearly 28 percent, or $8.86 billion on a January-September basis. Had the surplus stayed stable, it would have risen only from $600.08 billion during the first three quarters of 2018 to $630.39 billion, rather than $639.25 billion. Given all the import front-running seen throughout 2019 to try to avoid the Trump China tariffs (which artificially inflated the entire non-oil import total), that’s not a bad performance at all.

The aircraft effect has been much more dramatic this year. Year-to-date through September, the Made in Washington deficit is up from that $630.29 billion to $663.55 billion. Yet the nosedive in the aircraft surplus (all the way from $23.16 billion to just under $3 billion) accounts for nearly 83 percent of that increase.

Want another aircraft effect? Check out the manufacturing trade deficit – so rightly the focus of the President’s attention. Month-to-month, it rose by only 1.46 percent. But the new September level of $103.87 billion is the second-worst monthly total of all time – just behind July’s $104.63 billion. Even worse: The aircraft industry’s problems didn’t add to this number, since its trade deficit actually shrunk slightly on month.

But for the entire year so far, the plunge in the aircraft surplus (which, not so coincidentally, has been mirrored by smaller but not trivial reductions in the surpluses of all sorts of aircraft parts, including engines) has made a sizable difference. From January-September, 2019 to this year’s comparable period, the manufacturing trade shortfall has grown by $10.18 billion, from $777.60 billion to $787.78 billion. Take out the $20.16 billion worsening of the aircraft trade surplus, and the $10.18 billion higher year-to-date manufacturing trade deficit becomes a nearly $10 billion lower year-to-date manufacturing trade deficit.

And when it comes to both the manufacturing and overall Made in Washington trade deficits and a virus effect, don’t forget its healthcare goods component. Specifically, the U.S. trade deficit in pharmaceutical preparations jumped by $12.58 billion year-to-date between last year and this year, and in the categories containing (but not restricted to) protective gear like masks and gowns, testing swabs, ventilators, and oxygen tents by another $2.33 billion.

Since China remains so important for Made in Washington and manufacturing trade flows, bilateral exports, imports, and deficits not surprisingly reveal a major pandemic effect, too. The big China difference is how strongly the September data confirm that President Trump’s goals of reducing the bilateral trade gap and decoupling economically from the People’s Republic are being achieved even without taking the CCP Virus into account.

On a monthly basis, the goods trade gap with China dipped fractionally in September, to $29.67 billion. This total represented the second straight such drop and the lowest level since Aprils $28.40 billion. These merchandise imports inched up sequentially in September by just under one percent and have been virtually flat since July, but goods exports improved by 4.53 percent.

On a year-to-date basis, America’s China trade looks like it’s in even better shape. U.S. goods imports from China are off by nearly 11 percent ($37.54 billion) over this stretch, and the trade gap has become 15.24 percent ($40.06 billion) smaller.

This progress, moreover, has been achieved even though total U.S. exports of civilian aircraft and parts (including engines) to China have shrunk by $4.09 billion and the trade deficit in the virus-related medical equipment categories has risen by $1.25 billion. (Oddly, the bilateral pharmaceutical preparations trade balance has improved with the surplus improving from $449 million to $836 million.)

When all of these virus-related complications and the inevitably disruptive and therefore initial efficiency-reducing impact of the Trump trade policies are considered, two questions arise that are equally fascinating and important. First, once these temporary shocks pass, will this approach to globalization look more like a win or a loss for the U.S. economy? Second, will American election politics give the nation a chance to find out?

(What’s Left of) Our Economy: Records and More Puzzles in the GDP Report’s Trade Numbers

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

So many all-time and multi-year and even decade worsts revealed by the trade data revealed in the official U.S. economic growth figures released this morning! And even though these data on changes in the gross domestic product (GDP) for the third quarter of this year are pretty meaningless from an economic standpoint – because they’re so thoroughly distorted by the government-ordered shutdowns and reopenings due to the CCP Virus – they’re worth noting for the record, anyway.

But here’s something else worth noting – as with the last batch of GDP figures (the final-for-now results for the second quarter), the trade figures don’t seem to add up.

Let’s start with the records. Largely due to the strongest sequential U.S. growth on record (33.1 percent after inflation on an annualized basis), fueled by significant reopening plus massive government stimulus or relief funds (choose your own label), the quarterly inflation adjusted trade deficit hit an astounding $1.0108 trillion annualized. (The inflation-adjusted, or “real,” statistics are the ones most closely followed; therefore, unless otherwise specified, they’ll be the ones used from hereon in.)

Not only was that total a record in absolute terms. The 30.41 percent increase from the final second quarter level of $775.1 billion was the biggest since the Commerce Department began presenting trade deficit figures (as opposed to the simple export and import findings) in 2002. For context, the next greatest such jump was only 13.18 percent, between the first and second quarters of 2010.

The economy was recovering then, too – from the Great Recession that followed the global financial crisis – but that quarter’s annualized growth rate was only 3.69 percent.

As known by RealityChek regulars, the GDP reports treat increases in the trade deficit as subtractions from growth, and the third quarter’s was the worst in absolute terms (3.09 percentage points from that 33.1 percent annualized growth total) since the 3.22 percentage points sliced from growth in the third quarter of 1982. (For some reason, these data go back even further than that.)

In relative terms, though, the trade effect in 1982 couldn’t have differed more from the situation this year, as during that third quarter, the economy shrank in price-adjusted terms by 1.5 percent on an annual basis.

But those internal numbers!

According to the Commerce Department, exports in the third quarter added up to $2.1667 trillion annualized. But if you actually add the separate goods and services numbers provided, you get a sum of $2.1921 trillion. On the import side, the separate figures add up to a total of $3.2123 trillion, not the reported $3.1775 trillion. Therefore, the quarterly deficit would seem to be $1.0202 trillion, not the $1.0108 trillion presented.

As with the previous discrepancies, although this batch’s aren’t big enough to change the overall picture, they do raise some questions about the reliability of the rest of the data. So I’ll be hoping that the apparent confusion will be cleared up a month from now, when Commerce releases its second estimate for third quarter GDP – but not holding my breath.

(What’s Left of) Our Economy: Some Fishy New Official U.S. Trade Figures

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Commerce Department, exports, GDP, goods trade, gross domestic product, imports, real GDP, services trade, Trade, trade deficit, {What's Left of) Our Economy

Life as a blogger just gets more unpredictable all the time. Here I was this morning all set to try to figure out whether I’d write about the presidential debate last night or about the official new overall U.S. economic growth (actually contraction) numbers or about the official new figures for how domestic manufacturing fared. And I find my interest most piqued by apparent mistakes in those overall data on the shrinkage of the gross domestic product (GDP) in the second quarter.

As RealityChek regulars know, when I cover the GDP figures (which tell us how much in the way of goods and services the U.S. economy has turned out in a given time period, and how it’s changed over time), I tend to focus on the trade numbers that help make up these total figures. And I like to look at revisions, because the U.S. Commerce Department, which tracks these trends, doesn’t get it right the first time, or even the second time (because new information is being constantly received), and because it’s right up front about making these imperfections clear. (That’s why several revisions of these data are issued in the first place.)

Today’s report on the economy’s performance in the second quarter of this year was the third such report, and the final verdict for the time being. (So-called “benchmark” revisions will be coming down the road, going back several years, which speaks volumes about Commerce’s determination to get it right.)

And the “headline” trade number showed that between the first quarter and the second quarter, the total U.S. trade deficit declined from $788.0 billion to $775.1 billion. (All these trade figures are adjusted for inflation and presented at annual rates.) That’s an improvement. But it’s not as much of an improvement as the previous GDP report showed. According to that release, which came out about a month ago, the total second quarter real annualized trade deficit was $760.9 billion.

Or was it?

I can’t recount exactly what spurred me to look into the underlying figures, as opposed to taking the data’s accuracy for granted, as I normally do. But I began to check them out. And here’s what I found for that previous set of second quarter figures.

Last month’s GDP report judged that after-inflation U.S. goods exports for the second quarter totaled $1.3519 trillion annualized and U.S. goods imports were $2.3487 trillion. To get the balance, subtract second number from the first and you get a deficit of $996.8 billion.

For services, the second quarter results were previously reported as price-adjusted exports of $591.5 billion and imports of $372.8 billion. Doing the arithmetic produces a real services trade surplus of $218.7 billion.

To get the total trade deficit, the $218.7 billion services surplus has to be subtracted from the $996.8 billion goods deficit. And that number comes out to -$778.1 billion – not -$760.9 billion.

This difference is by no means major. But if my math is accurate, it reveals a final (for now) inflation-adjusted second quarter trade deficit that improved sligthly over the previously reported figure, rather than worsened.

In other words, the previous GDP report estimated that the second quarter real trade deficit improved on the first quarter’s results by a margin of $788 billion to $760.9 billion. But it looks like it should have reported a much less impressive narrowing – to just $778.1 billion. As a result, the $775.1 billion second quarter trade deficit figure reported this morning is a slightly better number than the incorrect previous estimate – not a worse result, as that incorrectly reported previous number indicated.

But guess what? That latest second quarter figure doesn’t add up, either. Specifically, today’s report pegs combined U.S. goods and services exports at $1.9274 trillion in real terms on an annual basis, with goods exports judged to be $1.3472 trillion and services exports reported as $582.1 billion. Add them up and you get $1.9293 trillion, not $1.9274 trillion.

On the import side, the Commerce Department now says that the second quarter total is $2.7025 trillion annualized, and that it’s comprised of $2.3480 trillion worth of goods imports and $372.1 billion worth of services imports. That adds up to $2.7201 trillion, not $2.7025 trillion. As a result, the total trade deficit was actually $790.8 billion annualized, not $775.1 billion (the difference between the new $2.7201 trillion total import figure and the $1.9293 trillion total export number).

Therefore, not only did the real trade deficit total worsen over the figure reported last month (from $778.1 billion to $790.8 billion, not to the $775.1 billion reported today). It also worsened from the first quarter’s $788.0 billion number.

At which point, it pains me to report that that first quarter total doesn’t add up, either.

The bottom line for me is that I’ll keep reporting the headline trade figures as they’re presented in the GDP reports by the Commerce Department. But I’ll be even more cautious than usual about assuming that they’re even accurate in measuring changes of direction, much less precise amounts. And I’ll be wondering if the rest of the federal government’s economic data is any better – at least until I can figure out what’s going on here.

(What’s Left of) Our Economy: Why Trump’s Solid Trade Record Survives the Lousy New U.S. Trade Report

Tags

automotive, Boeing, CCP Virus, cell phones, civilian aircraft, coronavirus, COVID 19, Made in Washington trade deficit, manufacturing, manufacturing trade deficit, non-oil goods deficit, shutdowns, tariffs, trade deficit, trade war, Trump, U.S. International Trade Commission, Wuhan virus, {What's Left of) Our Economy

This is how bad this morning’s official US. trade figures (for July) looked at first glance for folks like me – who value trade deficit reduction, and believe that trade policies like President Trump’s can make a real difference: When I began examining the data, even though I kept telling myself, “It’s only one month’s worth of statistics,” I scarcely knew what to despair about most.

Yet the “at first glance” point matters a lot. Because when you dig into the weeds, you’ll find plenty of evidence making clear that much of the deterioration had nothing to do with trade policy at all. And the evidence comes in two tables in these monthly trade reports on which I usually pass: Exhibit 7 and Exhibit 8. They cover U.S. exports and imports of goods “by End-Use Category and Commodity” and they provide the report’s most detailed picture of which areas of the economy have performed best and worst trade-wise during the month covered.

They’re not as detailed as those available from the U.S. International Trade Commission’s interactive search engine, but that database isn’t yet updated, so let’s go with what we have to begin seeing exactly where the biggest goods trade deficit increases came in July. (Goods trade, also called merchandise trade, makes up the bulk of U.S. trade flows, and it’s relatively unaffected by the policy decisions made by Washington – including by trade-minded Presidents like Donald Trump – mainly because international negotiations to deal with barriers in these sectors are still in pretty early stages)

Again, from the 30,000-foot level, the July results look terrible. The goods trade shortfall hit $80.91 billion – $9.26 billion, or 12.92 percent, higher than the June figure of $71.65 billion (which mercifully was revised down slightly). That increase proportionately is dwarfed by the record 31.60 jump of March, 1993. But that nearly 18-year old all-time high can be disregarded pretty easily, both because the law of small numbers is at work here (i.e., when you’re dealing with small absolute numbers, relatively small absolute changes can result in outsized percentage changes), and because back in those days, U.S. trade flows were heavily affected by oil trade – another sector of the economy rarely subject to trade policy decisions.

So what mainly accounted for that $9.26 billion merchandise import surge? First of all, we know that more than all of it ($9.94 billion) came in non-oil goods trade. As known by RealityChek regulars, those are the trade flows most heavily influenced by U.S. trade policy. So this increase in the “Made in Washington” deficit seems to reflect badly on decisions made in Washington. Drilling down a little deeper, manufacturing emerges as an even bigger culprit. Its $89.15 billion June trade gap ballooned to $104.63 billion in July – a rise of $15.48 billion. Not so incidentally, that manufacturing trade deficit is the worst ever in U.S. history, eclipsing the $101.65 billion recorded for October, 2018.

Nearly as interesting, though: China trade – where the President has been fighting a war – was not the biggest problem, as the manufacturing-dominated goods gap with the People’s Republic rose by just $3.22 billion. And neither the 11.35 percent on-month increase nor the $31.62 billion total goods gap was anywhere close to a record. 

So we’re back to manufacturing, and figuring out where the big deficit widening took place. Here’s where Exibits 7 and 8 matter.

What they tell us is that the monthly worsening of the merchandise trade deficit was highly concentrated in a handful of industries, and that these latest developments either have little or nothing to do with the Trump tariffs, or actually  demonstrate their effectiveness in widely overlooked ways.

Most relevant of all here is the automotive sector. Between June and July, the deficit in vehicles and parts combined increased by just under $3.20 billion. That represents more than a fifth of the sequential worsening of the manufacturing trade deficit, and nearly a third of the difference in the non-oil goods deficit. But the problem says little about the Trump trade policies, and a great deal about the reopening of U.S. automotive sector in late spring and early summer after the CCP Virus led to its almost complete shutdown in March and April.

From May through July, total American automotive production nearly tripled in real terms, according to the Federal Reserve’s industrial production reports. So it’s no surprise that since production in this industry is so globalized, and thus so many of its parts and materials (and the parts of the parts) are still imported, its trade deficit ballooned, too.

Then there are cell phones. Between June and July, the trade deficit here rose by just under $1.44 billion – 9.30 percent of the increase in the manufacturing deficit, and 14.48 percent of the problem in non-oil goods.

The cell phone category in the monthly trade releases also includes “other household goods” – one of the reasons I don’t love these numbers like I love those available from the International Trade Commission. But it’s reasonable to suppose that most of these goods are cell phones, and that most of these are coming from China – with which the Trump administration of course has been fighting a trade war.

As observed on RealityChek last month, however, Mr. Trump decided not to tariff them. So although cell phone imports indicate that the trade war is incomplete, they certainly don’t show that tariffs don’t work. If anything, they underscore what can happen when they’re missing.

A third major source of the deterioration shown in the new trade report is the civilian aircraft industry – where a surplus of $575 million in June became a $1.50 billion deficit in July. That’s a trade balance worsening of nearly $2.08 billion. In other words, this development alone accounts for 13.44 percent of the lousy July manufacturing trade results and 20.93 percent of the woes in non-oil goods trade flows.

Aircraft’s problems, however, have nothing to do with U.S. trade policy, and everything to with Boeing’s safety failures, which have led to big production shutdowns.

Add up the trade performances of these categories, and together they account for fully 43.38 percent of the manufacturing trade deficit’s increase between June and July, and a whopping 67.57 percent of the monthly rise in the non-oil deficit.

Combine these findings with a U.S. economic recovery that so far has been faster than the bouncebacks of many of its leading trade partners (except, notably, for export-heavy China) and the discouraging July trade figures don’t look nearly so discouraging.

Mission accomplished, then, for the Trump administration? Hardly? But the July trade report is far from a conclusive sign of failure, either. In fact, it leaves any fair-minded evaluation of the Trump trade record pretty much where it’s been since the CCP Virus arrived – deserving of solid grades before the bug arrived, and an incomplete during the completely abnormal times we’ve experienced since then.

(What’s Left of) Our Economy: More Trade Surprises in the New U.S. GDP Report

Tags

CCP Virus, Commerce Department, coronavirus, COVID 19, exports, GDP, goods trade, Great Recession, gross domestic product, imports, real GDP, recession, services trade, shutdowns, trade deficit, Wuhan virus, {What's Left of) Our Economy

First, let’s get the obvious out of the way: The U.S. economy took such a huge hit during the second quarter of this year that the 36.87 percent nosedive in output sequentially at an annualized rate reported this morning by the Commerce Departent was actually slightly good news. Specifically, it represented an improvement over the plunge estimated in last month’s advance read on the gross domestic product (GDP) – nearly 38 percent. Talk about a low bar!

(Just FYI, the above figures differ from what the Commerce Department itself has calculated and the media have reported. Mine are based on taking the second quarter annualized figure (in this case) of $17.2822 trillion in inflation-adjusted terms (the most closely watched of the GDP statistics) subtracting it from the first quarter figure ($19.0108 trillion), and then multiplying by four.)

Now for the less obvious: The GDP figures, which of course are historically awful because of the CCP Virus-induced shutdowns (and therefore maybe not very good measures of the economy’s underlying condition) keep producing noteworthy surprises on the trade front.

Specifically, last month’s initial Commerce Department GDP release pegged the inflation-adjusted trade deficit at $780.7 billion at an annual rate. This morning’s number was down to $760.9 billion. That’s a big revision, and it means that since the first quarter, the gap has narrowed not by the 3.71 percent estimated last month, but 13.76 percent – more than 3.7 times more! This shortfall, moreover, was the lowest since the second quarter of 2016’s $745.2 billion.

Interestingly, the main source of the improvement was on the goods side. Service sectors – which have suffered the most during the pandemic period because so many depend on human contact of some kind or other – saw their trade results barely budge from the previous estimates for the second quarter.

At the same time, let’s not overlook one stunning services trade-related result. As was the case with that previous second quarter services import figure of $372.7 billion annualized, this morning’s $372.8 billion result was the lowest in more than fourteen years, when the fourth quarter 2005 services import figure came in at $368.4 billion.

As for the rest of the components of inflation-adjusted U.S. trade flows (all annualized):

Second quarter U.S. total exports were revised up 0.60 percent, from $1.9316 trillion to $1.9431 trillion. That quarterly total was still the lowest since the first quarter of 2010 ($1.9026 trillion) – early in the recovery from the Great Recession of 2007-09.

Second 2Q total imports were revised down 0.30 percent, from $2.7123 trillion to $2.7040 trillion – the lowest since the third quarter of 2011 ($2.6970 trillion).

Second quarter goods exports were revised up 0.99 percent, from $1.3386 trillion to $1.3519 trillion. But that’s also the lowest such number since the first quarter of 2010 – which was exactly the same!

Second quarter goods imports of $2.3575 trillion represented a 0.37 percent upward revision from the previously reported $2.3487 trillion. That’s the smallest such figure since the second quarter of 2013 ($2.3381 trillion).

Second quarter services exports are now judged to have been $591.5 billion – just 0.12 percent lower than the first estimate of $592.2 billion – and the worst such total since the first quarter of 2010’s $586.8 billion.

And finally, that new second quarter services imports figure of $372.8 billion is virtually unchanged from the previous estimate of $327.7 billion. But again – it’s a nearly 15-year low.

For the time being, there’s one more second quarter GDP estimate to come from the Commerce Department – about a month from now. Then we’ll be getting into the reports for the third quarter, which is widely thought to have witnessed a strong but far from complete rebound in the economy. I for one can’t wait to see if those numbers produce any comparable trade surprises – and if so, what kind.

(What’s Left of) Our Economy: Mixed U.S. Trade News for June – but Little Good on China or Manufacturing

Tags

CCP Virus, China, coronavirus, COVID 19, exports, global financial crisis, goods, Great Recession, imports, manufacturing, merchandise trade, Phase One, Trade, trade deficit, Wuhan virus, {What's Left of) Our Economy

This morning’s report from the Census Bureau on the newest (June) monthly U.S. trade figures is classic mixed bag – at best. The combined goods and services deficit came down for the first time since February, and a several new export growth records were set. Yet the results in China goods and manufacturing trade disappointed and the export records come with big asterisks – the strong growth followed much steeper CCP Virus-related nosedives.

The total U.S. trade gap narrowed by 7.48 percent on month in June, from May’s upwardly revised $54.80 billion to $50.70 billion. The results brought this trade deficit down 16.86 percent year-to-date – from $297.45 billion to $274.31 billion.

The monthly improvement was led by an all-time best 9.38 percent jump in exports – from $144.69 billion to $158.25 billion. (The data, which go back to 1992, show that the previous record was 8.52 percent, set in February, 1994.)

All the same, the June monthly goods and services export total was still the third lowest (after the April and May figures) since August, 2010’s $157.77 billion. In this vein, the June export advance needs to be seen in the context of the all-time worst 31.67 percent cratering of exports that occurred between February and May. Indeed, this three-month nosedive dwarfed that experienced during the gloomiest three months of the Great Recession that followed the global financial crisis (17.12 percent between October, 2008 and January, 2009). Moreover, total exports are down 15.75 percent on a January-June basis.

As for total imports, they rose 4.74 percent sequentially in June from an upwardly revised $199.49 billion to $208.95 billion. The increase, while not as historic as that for exports, was nonetheless the biggest since March. 2015’s 6.71 percent (also affected by natural disruption – that winter’s blizzards).

Yet virus-related distortions were clearly at work here, too, as the June import increase followed a 19.05 percent drop in total U.S. purchases from abroad between February and May. (Interestingly, the Great Recession’s greatest three-month import fall-off was a slightly larger 22.32 percent – and as with exports, took place between October, 2008 and January, 2009.)

For flows of goods specifically, the 5.29 percent June decline in the trade deficit (from an upwardly revised $76.18 billion in May to $72.15 billion) was also the first monthly decrease since February.

June’s 14.49 percent monthly advance in goods exports was another record – significantly exceeding the 9.01 percent registered in March, 1994. Even so, this impressive performance represented another incomplete recovery from a virus-related blow. For it came on the heels of a 35.01 percent collapse in these shipments between February and June – a fall-off much bigger than that seen between the Great Recessionary period between October, 2008 and January, 2009 (21.51 percent).

So it shouldn’t be surprising that June’s $102.87 billion goods export figure was the third lowest (again, after April and May) since April, 2010. Moreover, on a year-to-date basis, goods exports are 16.74 percent below 2019’s levels.

Goods imports were up 5.42 percent month-to-month in June. As with total trade, this change was considerably smaller than that for exports, and below the record of 7.78 percent set in March, 2015. (Those blizzards again.) But it, too, was CCP Virus-distorted, since it followed a 16.42 percent fall from Feb. through May.

The US-#China goods #trade deficit rose by 6.46% on-month in June, from $26.96 billion $28.40 billion. The only good news embedded in this result is that the monthly rate of growth slowed maredly from May’s 19.99 percent. The June number, moreover, was the highest since last October’s $31.26 billion.

Most discouraging – U.S. merchandise goods exports to the recovering economy of the People’s Republic were down 4.14%, month-to-month, from $9.64 billion to $9.24 billion. Especially important – overall U.S. goods sales to China on a January-June basis are running nearly 16 percent below their 2017 level, the baseline year for judging Beijing’s U.S. import commitments under the Phase One trade deal. The total import number doesn’t necessarily mean that China is way behind on this pledge, since it covered many specific sectors of the economy. But so many sectors are covered that the lag does raise important treaty violation questions.

U.S goods imports from China rose 2.85 percent sequentially in June, from $36.60 billion to $37.64 has also slowed significantly from the 17.79% monthly jump in May and the nearly 57 percent surge in April. That month’s performance reflected the restart of China’s factories following widespread CCP Virus-related shutdowns that depressed these sales to the US by 40.49 percent between January and March.

Manufacturing’s June trade figures were even worse. The deficit increase 5.30 percent over May’s $84.68 billion total, and the new $89.16 billion mark was the biggest since last October’s $92.70 billion.

Between May and June, manufacturing exports grew a healthy 15.46 percent, from $61.88 billion to $71.45 billion. But the much greater amount of imports expanded strongly as well, from $146.55 billion to $160.61 billion, or 9.59 percent.

Year-to-date, though, the manufacturing trade deficit is off by 4.53 percent, with exports running 17.17 percent below comparable 2019 levels and imports 11.24 percent less.