(What’s Left of) Our Economy: New Official Data Show U.S. Trade Remains on a Winning Streak

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China, exports, goods trade, imports, Made in Washington trade flows, manufacturing, semiconductors, services trade, Taiwan, tariffs, Trade, trade deficit, {What's Left of) Our Economy

The official U.S. trade figures for July that came out this morning continued June’s encouraging pattern of smaller deficits amid continued (if subdued) American economic growth – but with a twist. The previous trade report showed that the overall goods and services shortfall shrank because exports rose healthily while imports slipped just slightly.

The July release showed a smaller trade gap due largely to lower imports. Exports improved, too, but just negligibly.

Yet the bottom line remained the same: an economic expansion that’s gotten a little healthier, because the nation is earning its way in the world to a modestly greater extent.

The specific numbers: The total trade deficit sank month-to-month by 12.65 percent in July – from $80.88 billion to a level of $70.65 billion that was the lowest for a single month since last October’s $68.16 billion. The drop, moreover, was the fourth straight – the longest such stretch since the six-month period between May and November, 2019 – months before the CCP Virus pandemic arrived state-side in force.

The only negative here: That June number was revised up a big 1.59 percent from the initially reported $79.61 billion.

Monthly shrinkage was also reported for goods trade – which comprises the lion’s share of total U.S. trade. Here in July the gap also declined for the fourth straight month – by 8.23 percent, from $99.26 billion to $91.09 billion, and the level was the lowest since October ($98.26 billion), too. And as with the overall deficit, this winning streak was the longest since that May-November span in 2019.

Meanwhile, the long-time U.S. services surplus – which has deteriorated dramatically during the pandemic era due to mandated and voluntary behavioral curbs that hammered industries like travel and tourism – widened by 11.19 percent sequentially in July, from $18.38 billion to $20.44 billion. The monthly increase was the third straight, the level was the highest since last December’s $21.66 billion, and the monthly jump the biggest since last November’s 12.22 percent.

A degree of skepticism may be in order, though, because the June services surplus was revised down a huge 7.47 percent.

Total exports edged up 0.20 percent on month in July, from $258.76 billion to $259.29 billion. However meager, the increase still produced the sixth straight monthly record and the sixth straight increase – matching the performance of Februay-August, 2021. But a sizable revision should be noted here, too, as June’s total was downgraded by 0.73 percent.

Goods exports dipped in July for the first time since January – by 0.16 percent, from an upwardly revised record $183.29 billion to $182.99 billion. But the figure is still the second ever and impressive considering the sluggish growth in which the global economy is mired and the multi-decade highs achieved by the U.S. dollar against most global currencies – which harms the price competitiveness of U.S.-made products.

Yet services exports climbed 1.10 percent, from a downwardly revised $75.47 billion to a record $76.30 billion. This increase was also the sixth in a row, and although June’s results were revised down by a substantial 2.94 percent, it remains the second best monthly performance ever.

Combined goods and services imports were down for a second straight month – by 2.86 percent from a downwardly revised $339.64 billion to $329.94 billion. This total was the lowest total since February’s $320.53 billion and the back-to-back decrease was the first such fall-off since the March-May, 2020 period – the peak of the CCP Virus’ first wave.

Goods imports also fell for a second straight month – by three percent, from $282.55 billion to $274.08 billion. And this back-to-back decrease was the first since March-May, 2020 as well.

Services imports in July experienced their first decline since January, weakening by 2.15 percent, from $57.09 billion to $55.86 billion. Even better: The June figure was revised down by a hefty 1.38 percent.

As known by RealityChek regulars, the non-oil goods deficit is a good global barometer for U.S. trade policy’s performance, because the oil and service trade flows it leaves out have rarely been the focus of U.S. trade agreements or other initiatives. This “Made in Washington” deficit tumbled for the fourth straight month too – by $100.29 billion to $89.96 billion.

As with some of the other trade flows, this deficit was the lowest since last October ($84.37), and the monthly fall-off was 10.93 percent. Moreover, the four straight months of improvement were the longest such stretch since June-October, 2007 – when the economy was approaching its worst downturn since the Great Depression of the 1930s.

Made in Washington exports in July increased for the sixth straight month, too – by 0.96 percent, from $151.841 to $153.301 billion. These overseas sales also set their sixth consecutive record, and the winning streak was the longest since the eight-month period between June, 2020 and January, 2021 – during the recovery from the virst virus wave.

These non-oil goods imports in July sank for the fourth straight month, and the 3.52 percent sequential drop brought the level to its lowest – $243.26 billion – since February’s $242.25 billion. This winning streak was the longest since the five-month stretch between peak pandemic-y December, 2020 to May, 2020.

Manufacturing’s huge and chronic trade gap narrowed on month in July, too, and for the second straight time. The drop was 6.12 percent, from Jue’s $130.05 billion to $122.09 billion, and this level was the lowest since February’s $106.49 billion.

Manufactures exports fell back from June’s record $114.78 billion to $109.50 billion. The 4.60 percent retreat left these sales at their lowest level since April’s $109.36 billion.

Manufactures imports fell faster – by 5.41 percent, from $244.83 billion to $231.59 billion. This total was also the lowest since April ($233.50 billion).

On a year-to-date basis, manufactures exports are up by 16.10 percent (from $643.07 billion to $746.62 billion. But the much greater amount of manufactures imports have surged by 18.38 percent (from $1.37285 trillion to 1.62524 trillion).

As a result, the year-to-date manufacturing trade shortfall has already hit $876.62 billion – a 20.12 percent jump from last year’s $729.78 billion, and as early as next month’s trade report, industry’s deficit could pass the trillion-dollar annual level for the fifth year in a row.

The also huge and chronic U.S. goods trade deficit with China decreased for the first time since April, dropping 6.90 percent from $36.95 billion (the highest figure since November, 2018) to $34.40 billion.

American goods exports to China advanced month-to-month in July by 5.04 percent, from $11.68 billion to $12.27 billion. And the much greater volume of imports slumped by 4.03 percent, from $48.63 billion (the third highest monthly total on record) to $46.66 billion.

But on a year-to-date basis, the China goods deficit has worsened by 26.42 percent. Since its growth rate is now faster than the 21.75 percent of the Made in Washington gap (its closest global proxy), it looks as if the impact has faded of the sweeping Trump tariffs (which the Biden administration has just announced it will keep in place).  

One likely reason: the 8.41 percent devaluation of China’s currency, the yuan, versus the U.S. dollar engineered by Beijing so far this year.

And a final July U.S. trade development worth noting: the 25.10 percent monthly burst of the goods deficit with global semiconductor manufacturing technology leader Taiwan to a new record $4.74 billion.

American merchandise imports of microchips and other products from the island grew by 15.71 percent on month in July, from $7.33 billion to an all-time high of $8.48 billion. But U.S. goods exports (which include much semiconductor manufacturing equipment) were up as well in July. The 5.64 percent increase produced the second best monthly total ever ($3.74 billion – behind only March’s $3.89 billion).

(What’s Left of) Our Economy: An Encouraging June Swoon for the U.S. Trade Deficit

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China, energy, exports, GDP, goods trade, gross domestic product, imports, Made in Washington trade deficit, manufacturing, non-oil goods deficit, recession, services trade, supply chain, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

This morning’s official data (for June) show that U.S. trade was firing on practically all cylinders that month. In addition, the shrinkage in the combined goods and services deficit to the lowest level ($79.61 billion) since last December ($78.87 billion) was clearly attributable not only or even mainly to developments holding the nation’s imports down – ranging from a slowing in American economic growth (and therefore in most consumption) to the wounds China is inflicting on its export-heavy economy due to its insanely over-the-top Zero Covid policy to separate renewed backups at U.S. ports.

Instead, it’s also happening because many exports are up (to record levels), and that’s especally impressive because the dollar is so strong (which places U.S.-origin goods and services at price disadvantages all over the world, including in their home market) and because global growth is getting so weak (which tends to dampen demand for America’s offerings). And P.S. – these rising exports encompassed more than just the U.S. natural gas and other fossil fuels in such demand due to the Ukraine war and related sanctions on Russia.

The June figures reported one important exception, though: a monthly surge in the goods trade deficit with China to its highest level since November, 2018.

The June sequential drop in the overall trade deficit of 6.23 percent, from May’s $84.91 billion, was the third straight monthly decrease – a streak that hasn’t been seen since the second half of 2019, when the shortfall dropped sequentially six consecutive times – between June and November. Even better, the May total trade gap was revised down by a healthy 0.75 percent.

The deficit in goods trade – which dominates U.S. trade flows – tumbled 4.74 percent on month from $104.43 billion to $99.48 billion, its lowest level since last November. It, too, decreased sequentially for the third straight month, the first such stretch since December, 2019 through February, 2020 – just before the CCP Virus’ arrival in force began roiling and distorting the entire U.S. economy.

Meanwhile, the longstanding surplus in trade in services – which has been hit particularly hard by pandemic-related lockdowns and more cautious consumer behavior – advanced by 1.76 percent, from May’s upwardly revised (by 0.58 percent) $19.53 billion to $19.87 billion.

Combined goods and services exports hit their fifth straight monthly high in June, rising 1.67 percent from May’s upwardly revised $256.52 billion to $260.80 billion.

Energy goods exports were indeed way up – with natural gas overseas sales jumping by 26.51 percent, fuel oil exports increasing by 8.66 percent, and miscellaneous petroleum products climbing by 3.97 percent.

But they were far from the only significant export winners. For example, machinery and equipment exports soared by 13.78 percent on month in June; of foods, feeds, and beverages exports improved by 5.81 percent; and high tech goods’ foreign sales gained 4.51 percent.

In fact, goods exports overall also reached unprecedented heights for a fifth straight month in June, rising 1.97 percent sequentially from $179.51 billion to $183.04 billion.

As for services, their foreign sales hit their third straight all-time high, growing 0.97 percent on month, from $77.01 billion to $77.76 billion.

Overall imports, as mentioned, inched down sequentially – by 0.30 percent – in June, from $341.43 billion to $340.41 billion.

Another small monthly June decrease was registered by goods imports, which sagged by 0.50 percent, from $283.94 billion to $282.52 billion.

Only services imports broke this pattern: They set their own fifth consecutive record, increasing by 0.70 percent, from $57.49 billion to $57.89 billion.

The news in manufacturing trade was good, too – but only in comparison to industry’s recent alarming performance. The sector’s chronic, mammoth trade deficit was down 1.92 percent on month in June, from $132.60 billion to $130.05 billion. But this most recent total was still the third highest ever, after March’s $142.22 billion and the May figure.

Manufacturing joined the list of June export winners, as foreign sales increased sequentially from $112.15 billion to a new record $114.78 billion.

Manufactures imports inched up by mere 0.04 percent on month in June, from $244.75 billion to $244.83 billion. But this number was the second worst on record, after March’s $256.18 billion.

All told, at the statistical midway point of the year, the manufacturing trade deficit is running 22.13 percent ($756.53 billion vs $619.42 billion) ahead of last year’s record total. As a result, it’s all but certain that the United States in 2022 will rack up its fifth straight $1 trillion-plus manufacturing trade gap.

Year-to-date manufacturing exports are up 16.26 percent – from $548 billion to $637.12 billion. But the much greater amount of manufacturing imports has risen even faster – by 19.38 percent, from $1.16742 trillion to $1.39365 trillion.

Until very recently in the pandemic period (and its possible aftermath), as noted here, domestic manufacturing output and employment have held up remarkably well despite U.S.-based industry’s ballooning trade gap. The reason, as I pointed out here, is that Americans’ demand for manufactured goods has grown so strongly that domestic producers have been able to boost output even as imports flooded in much faster.

But with domestic manufacturing output decreasing in inflation-adjusted terms in both May and June, it looks like an economy-wide U.S. slowdown is weakening this demand, and that U.S.-based industry is finally paying a price for the share of its home market that it’s been losing.

The June China trade front news was even worse than that for manufacturing. The U.S. goods deficit with the People’s Republic soared by 17.13 percent sequentially, from $31.54 billion to $36.95 billion. That level is the highest since November, 2018’s $37.69 billion, and the increase the biggest since the 20.45 percent recorded in May, 2020 – when China and the United States were making recoveries from the first CCP Virus wave.

U.S. goods exports to China slumped by 5.22 percent, from $12.32 billion to $11.68 billion, while imports popped by 10.85 percent, from $43.86 billion to $48.63 billion – the highest total since last December’s $49.53 billion.

At least as important, this bilateral goods trade deficit is now up 27.51 percent on a year-to-date basis, as opposed to the 24.34 percent increase over the same period for its closest global proxy – the U.S. non-oil goods deficit.

For most of the time since the imposition of the first China tariffs imposed by former President Donald Trump in early 2018, this “Made in Washington” trade deficit (so named because by omitting services and oil trade, it tracks the U.S. trade flows most heavily influenced by U.S. trade policy) has been rising more slowly than the China goods deficit. Yet the gap, as noted in last month’s trade report, has been narrowing lately, and the June figures signal that it might be gone for the time being.

In general, though, the June trade report was a pleasant surprise given the currency and global growth headwinds mentioned above. Additional cause for some optimism:  The latest official release on the size of the U.S. economy in inflation-adjusted terms told much the same story of the trade gap narrowing for the “right reasons.”

But can the trade deficit keep falling due mainly to better exports, rather than following the typical slowdown and recession pattern of shrinking mainly due to the falling exports caused by weaker demand? In other words, can the falling deficit contribute to the quality of U.S. growth rather than simply reflect a feebler economy? Those are different questions altogether.

Following Up: Podcast Now On-Line of National Radio Interview on Pelosi Taiwan Visit and U.S. Stagflation Prospects

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Asia-Pacific, China, decoupling, Following Up, geopolitics, Indo-Pacific, inflation, manufacturing, Market Wrap with Moe Ansari, Nancy Pelosi, national security, Pelosi, recession, sanctions, semiconductors, stagflation, Taiwan, tech, Trade, trade deficit

I’m pleased to announce that the podcast is now on-line of my interview last night on the nationally syndicated “Market Wrap with Moe Ansari.” Click here for a timely conversation on two headline issues:  how U.S. House Speaker Nancy Pelosi’s controversial visit to Taiwan could hit U.S.-China economic relations and America’s access to Taiwan’s world-class semiconductor manufacturing prowess; and why what’s in store for the U.S. economy could be even worse than the recession that’s now widely forecast.

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

(What’s Left of) Our Economy: Is the U.S. Trade Deficit’s Latest Dip More than Recession-y?

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CCP Virus, China, coronavirus, COVID 19, economic growth, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recession, services trade, supply chains, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

Although yesterday’s official figures show that the U.S. economy has now shrunk for the second straight quarter, the nation’s chronic and immense trade deficit played a diametrically different role in producing the final results. Whereas during the first quarter of this year, the trade gap’s widening was the difference between expansion and contraction of the gross domestic product (GDP – the standard measure of the economy’s size), during the second quarter (at least according to the new advance figures), its narrowing kept the drop in GDP from being considerably worse.   

The tumble of 0.94 percent at annual rates revealed in GDP after inflation (the most widely followed measure, and the GDP gauge that will be used throughout this post unless otherwise specified) came on top of a 1.58 percent decrease in the first quarter. As many have observed, two consecutive quarters of real GDP decline has long been a common definition of a recession.

This time around, however, a 4.53 percent fall-off in the inflation-adjusted trade shortfall, from a record $1.5447 trillion at annual rates to $1.4747 trillion, generated 1.43 percentage points of sequential growth in the second quarter. Although the new deficit was still the second biggest on record, the improvement prevented the quarter’s GDP drop from reaching 2.37 percent – which would have been the worst such performance since the nearly 36 percent crash dive recorded between the first and second quarters of 2020, when the CCP Virus pandemic and its impact on the economy were at their worst.

This year’s second quarter, moreover, marked the first time that America’s trade flows had added to growth, and the biggest such contribution in absolute terms, since that spring of 2020, when the pandemic and related mandated and voluntary curbs on economic activity greatly depressed U.S. imports. In relative terms, the second quarter’s trade contribution to growth was the best since the second quarter of 2009, near the end of the Great Recession that followed the global financial crisis. During that quarter, real GDP sank at an annual rate of 0.68 percent, but trade generated 1.53 percentage points of growth.

By contrast, during the first quarter, the trade deficit’s expansion subtracted a whopping 3.23 percentage points from the change in GDP – which turned what would have been a 1.65 percent sequential increase into that 1.58 percent shrinkage.

The reduction in the trade deficit also enabled the shortfall to decrease as a percentage of the entire economy from the first quarter’s all-time high of 7.83 percent to 7.49 percent. Further, the 4.34 percent sequential decrease represented by this progress was the biggest since the 9.45 percent decline in the fourth quarter of 2019 – just before the pandemic arrived state-side in force.

At the same time, at 7.49 percent of real GDP, the second quarter trade deficit was still the second highest ever, and since that immediately pre-pandemic-y fourth quarter of 2019, the trade shortfall has ballooned by 73.99 percent. As of the first quarter, it had swollen during this period by 82.24 percent.

Ordinarily, the reasons for this trade deficit decline would be a clearcut positive:  Even though the gap usually narrows as the economy weakens, it stemmed from  total exports (counting goods and services) advancing much faster than the much larger amount of imports. But as the nation and world are still in the CCP Virus and in the middle of the Ukraine War, with all the supply chain turbulence they’ve both brought on and will surely keep bringing, drawing strong conclusions still seems unusually hazardous.   

Those total U.S. exports improved by 4.22 percent on quarter, from $2.3613 trillion at annual rates to $2.4410 trillion – the highest such total since the $2.5533 trillion recorded in the fourth quarter of 2019, just before the pandemic hit the U.S. economy. The results were especially encouraging since total exports fell sequentially in the first quarter (by 1.23 percent), and given the global economic slowdown and the dollar’s strengthening to roughly 20-year highs versus nearly all currencies. This move in and of itself put U.S.-origin goods and services at a price disadvantage versus foreign competitors the world over.

Combined goods and services exports are now down just 3.61 percent since that fourth quarter of 2019, versus the 7.52 percent calculable last quarter.

Total imports inched up just 0.76 percent, although the new $3.9357 trillion annualized level did amount to a sixth straight record and an eighth consecutive quarterly increase. These purchases have now climbed by 15.37 percent during the pandemic era, versus the 14.85 percent calculable last quarter.

The goods trade deficit, meanwhile, declined by 3.96 percent sequentially, from the first quarter record total $1.6572 trillion annualized to $1.5916 trillion. This drop was the first since the peak pandemic-y second quarter of 2020, and the biggest since the 6.52 percent shrinkage in the fourth quarter of 2019. The goods trade gap, consequently, has grown by 48.55 percent since the end of 2019, as opposed to the 54.68 percent calculable last quarter.

Goods exports in the second quarter rose 3.69 percent from the first quarter’s $1.7577 trillion at annual rates to a new record $1.8225 trillion – surpassing the previous all-time high of $1.8046 trillion set in the first quarter of 2019. These new results also mean that goods exports have finally exceeded pre-pandemic levels (by 2.24 percent). After the first quarter ended, they were still down 1.39 percent since the fourth quarter of 2019.

Goods imports, however, recorded their first quarterly decrease since the third quarter of 2021 – though only from a worst ever $3.4149 trillion annualized to $3.4141 trillion. But these imports are still 19.63 percent higher than in that immediate pre-pandemic fourth quarter of 2019.

The services trade surplus improved by 8.60 percent between the first and second quarters, from $109.3 billion at annual rates to $118.7 billion. Reflecting the unusually hard hit delivered by the pandemic to the service sector, however, this surplus is still 47.64 percent lower than its level just before the virus began seriously affecting the U.S. economy. That is, it’s been nearly cut in half.

Services exports in the second quarter actually increased sequentially for the third straight time. And the 5.56 percent advance, from $631.5 billion annualized to $666.6 billion was the strongest since the 5.83 percent jump in the fourth quarter of 2006. Nonetheless, services exports remain 13.84 percent off their immediate pre-pandemic level, versus the 18.38 percent calculable last quarter.

Services imports are now back above their pre-pandemic levels, too (by 1.65 percent), having risen 4.92 percent sequentially in the second quarter, from $522.2 billion at annual rates to $547.9. The improvement, moreover, was the fastest since the 7.80 percent recorded in last year’s third quarter.

As mentioned above, usually it’s unambiguously good news for both trade, and to a lesser extent, the entire economy, when the trade deficit diminishes because exports are up considerably faster than imports. It’s normally even better news when these kinds of results are delivered in challenging international and exchange rate environments. But with the Ukraine War and China’s Zero Covid policy still distorting U.S. and global trade flows and unlikely to end anytime soon, unbridled optimism is hard to justify. So like the Federal Reserve, RealityChek will remain data dependent as it tries to detemine the outlook for U.S. trade’s fortunes.

(What’s Left of) Our Economy: Hold Your Applause on Inflation Progress Signs

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consumers, demand, Employment, Federal Reserve, fiscal policy, gas prices, GDP, gross domestic product, household spending, housing, inflation, Jobs, manufacturing, manufacturing jobs, manufacturing production, monetary policy, mortgages, personal consumption, personal spending, recession, retail sales, trade deficit, {What's Left of) Our Economy

At the end of last month, I wrote that if a national government (including its central bank) wants to get inflation down, it’s not a rocket science-type challenge.” Basically all that’s needed is the willingness to take some combination of the kinds of fiscal and monetary measures that are guaranteed to slow economic growth.

Keep that in mind as you read the mushrooming number of claims that America’s recent historic burst of inflation is either peaking (see, e.g., here, here, and here) or should peak soon (e.g., here, here, and here). Because wherever softening prices can be seen, levels of demand have fallen off either because goods and services are becoming unaffordable and sales are down, or because easy money has gotten harder, or some degree of both. So let’s not conclude that inflation progress stems from a sudden outburst of policy-making genius.

Anyone doubting the start of a economic downshifting should check out the many of the latest reports released by the federal government on the economy’s performance. In the first quarter of this year, the gross domestic product (GDP – the standard measure of the economy’s size) fell by 1.58 percent at an annual rate adjusted for inflation, and the pretty reliable forecasters at the Atlanta branch of the Federal Reserve system expect about the same kind of contraction for the second quarter.

If this prediction holds, the United States will have entered a recession by the most widely used yardstick – two straight quarters of what economists call “negative growth.”   

Manufacturing production – which RealityChek regulars know has held up very well during the pandemic period – has now dropped sequentially for two straight months. And a downshifting U.S. economy is importing less, which has reduced the bloated trade deficit for two straight months as well.

The employment picture is better (including in manufacturing) but on an economy-wide basis some signs of deterioration are visible as well. Chiefly, if you look at three-month averages (which help smooth out often misleading short-term fluctuations, you see that from January through March, this measure of private sector job growth totalled 527,000. From April through June, it dropped to just under 362,000, and may sink lower, as the April and May figures have been downwardly revised, signaling that the same may be in store for June’s results.

Some of the best evidence of declining affordability – across the board – come from the official retail sales figures. On an annual basis, their increase is down from the mid-double digit levels of January and February (propped up by the unusually weak numbers from the heavily pandemic-affected figures for the previous – baseline – winter), to 9.26 percent in June.

That may not sound like a lot, but when inflation is considered, these retail sales increases turn into decreases for three of the last four months through June’s preliminary report. In other words, because of rapidly rising prices, consumers weren’t actually buying more in the way of goods and services. They were simply paying more for quantities that had actually shrunk. And the month-on-month sales numbers have been negative for three of the last four months, too.

The affordability issue is especially clear from the recent decrease in gasoline prices. Yes, they’ve tumbled for more than a month. But less driving is the obvious reason. For example, here we are in the middle of peak summer driving season, when the subsiding of the pandemic supposedly has millions of Americans determined to engage in so-called “revenge travel.”

But according to the U.S. Energy Information Administration, gasoline consumption “is just above the same time two years ago [when revenge travel was popular, too, as the virus’ first wave receded, but was still taking a much bigger toll than today] but below every other year going back to 2000.”

The American Petroleum Institute added that last month’s 9.1 million barrels per day of demand was “down 2.3% y/y compared with June 2021—a third straight month in which gasoline trailed its year-ago levels.” Moreover, so far, this year’s May-June increase of 0.4 percent in gasoline use has badly “lagged the average 2.9% seasonal increase seen between May and June in 2012-2021.”

Meanwhile, the role of higher interest rates (and consequently tighter credit) is best seen in the housing market. Summarizing the latest findings of the National Association of Realtors, The Wall Street Journal just reported that “sales of previously owned homes fell for a fifth straight month, dropping 5.4% in June to an annualized rate of 5.12 million.”

The main reason? The big run up in mortgage rates has depressed mortage applications for three straight weeks has pushed them down to their lowest levels since 2000. That means they’re below where they were even during the deflation of the mid-2000s housing bubble that helped trigger the global financial crisis and Great Recession.

Most important of all, even those believing that American leaders deserve credit for figuring out a successful anti-inflation fighting strategy, should remember that although interest rates are higher, they’re far from historically high and even fall well short of even recent very low norms; and that even though some prices are down, they’re still historically high. And that’s not even considering that the supply chain troubles also contributing to recent inflation could well intensify as long as the Ukraine war drags on, and the threat of more over-the-top Zero Covid lockdowns in China can’t be dismissed.

So even though this kind of bitter policy medicine is needed to avoid worse inflation down the road, and genuinely harsh austerity measures (especially as long as U.S. leaders seem to lack a clue regarding the inflation-fighting potential of productivity growth improvement), American voters aren’t likely to be grateful this November – or in any elections in the foreseeable future. And who could blame them?

 

(What’s Left of) Our Economy: The U.S. Trade Deficit Falls Again — For the Wrong Reasons

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Advanced Technology Products, ATP, Canada, CCP Virus, China, coronavirus, currency, euro, Eurozone, exchange rates, exports, goods trade, imports, Japan, lockdowns, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, trade deficit, Vietnam, yen, zero covid policy, {What's Left of) Our Economy

As of this morning’s official data, May makes two straight months during which the total U.S. trade deficit has fallen. The last time that’s happened? The second half of 2019, and then, the shortfall dropped sequentially six consecutive times – between June and November.

Normally such declines would be good news. But of course, these times still aren’t normal thanks to the lingering effects of the CCP Virus and more recently to the Ukraine War. And indeed, back in 2019, this trade gap narrowing took place as economic growth was slowing moderately, but the post-financial crisis expansion was nonetheless continuing. The more recent improvement is likely coming, as often happens, while the economy likely has slipped into recession.

The new Census Bureau release shows that right after it tumbled sequentially in April by a whopping 19.47 percent (a little more than first reported), the combined goods and services trade deficit shrank by another 1.32 percent in May, from $86.69 billion to $85.55 billion. For good measure, this shortfall was the lowest since December’s $78.87 billion.

The gap narrowed because exports advanced respectably and imports rose more sluggishly – a bit of encouraging news, especially considering the dollar’s recent strength (which by itself boosts the prices of U.S. goods and services both at home and abroad versus the foreign competition), and the many weak and/or weakening economies overseas (which increases the pressure they feel to grow by exporting to stronger and/or more open economies).

Even so, combined goods and services exports climbed by 1.20 percent on month in May, from an upwardly revised $252.85 billion to $255.89 billion – their fourth straight monthly record.

Overall imports, however, grew by just 0.56 percent – from a downwardly revised $339.54 billion to $341.44 billion.

The goods trade deficit sank by 2.65 percent sequentially in May, from an upwardly revised $107.82 billion to $104.96 billion – which, as with the overall trade gap was the best monthly level since December ($100.52 billion).

Unfortunately, in May the big services trade surplus that the United States has run for so long dropped sequentially for the first time in three months – and by 8.52 percent, from an upwardly revised $21.13 billion to $19.41 billion.

Goods exports were up 1.71 percent month to month in May, from a downwardly revised $176.02 billion to fourth straight all-time high of $179.03 billion.

Services exports rose, too, and to their second straight all-time high. But the increase was only 0.05 percent, from an upwardly revised $76.52 billion to $76.83 billion.

Goods imports also increased on month in May by just 0.05 percent, from $283.84 billion to $283.99 billion.

But services imports in May grew much faster – by 3.15 percent, from a downwardly revised $55.70 billion to a fourth straight monthly record of $57.46 billion.

The non-oil goods trade deficit is known to RealityChek regulars as the Made in Washington trade deficit, because by stripping out figures for oil (which trade diplomacy usually ignores) and services (where liberalization efforts have barely begun), it stems from those U.S. trade flows that have been heavily influenced by trade policy decisions.

In May, this shortfall was down 3.43 percent sequentially, from an upwardly revised $108.47 billion to $104.68 billion. That’s the lowest monthly total since February’s $103.29 billion.

No such luck with America’s enormous and persistent manufacturing trade deficit. It rose month to month in May by 6.58 percent, from $124.41 billion to a $132.60 billion level that was the second worst of all-time after March’s $142.22 billion.

U.S. exports of manufactures increased sequentially in May by 2.55 percent. And the new $112.15 billion in such sales was their second best ever, after March’s $113.96 billion.

But the much greater amount of manufacturing imports jumped by 4.82 percent, to $244.75 billion – another second best ever (after March’s $256.18 billion).

On a year-to-date basis, the manufacturing deficit is running 24.07 percent ahead of last year’s total, ($504.94 billion to $626.48 billion) which almost guarantees that this shortfall will hit its eleventh straight all-time high, in the process topping last year’s $1.3298 trillion.

Manufactures exports year-to-date have risen by 15.87 percent, but imports have surged by 20.01 percent.

The trade deficit in Advanced Technology Products (ATP) worsened in May as well, advancing 11.94 percent on month to $20.48 billion. ATP exports dipped by 0.71 percent, but imports were up by 3.94 percent.

Given the prominence of both manufactures and Advanced Technology Products in U.S.-China trade, it’s no surprise that as their global trade gaps widened in May, so did the U.S. goods deficit with the People’s Republic. Also at work on all these fronts: the partial easing of the Zero Covid policy-induced lockdowns that halted so much economic activity in China this spring.

The China goods shortfall rose by 3.18 percent, from $30.57 billion to $31.54 billion. And in a continuing departure from a recent pattern, this growth contrasted with the aforementioned 3.43 percent drop in the non-oil goods deficit that’s its closest global proxy.

For most of the time since the Trump tariffs on China started being imposed in 2018, the goods deficit with the People’s Republic actually had been falling while that Made in Washington gap kept growing, suggesting that the former President’s ongoing trade curbs had been achieving a major stated goal. On a year-to-date basis, the China deficit is still up slightly less (26.23 percent) than the Made in Washington deficit (27.56 percent). But clearly the difference between the two is shrinking.

One entirely possible reason is that China has devalued its controlled currency versus the dollar by 5.45 percent since the end of last year – which of course cheapens the price of Made in China products for reasons having nothing to do with free trade or market forces, and which suggests that rather than thinking about cutting or eliminating tariffs on these products, President Biden should be mulling some increases.

For May, U.S. goods exports to China improved sequentially by 9.99 percent, from $11.20 billion to $12.32 billion, while imports grew by 5.01 percent, from $41.77 billion to $43.86 billion.

In other May developments with major U.S. trade partners:

>The U.S. goods deficit with Canada soared by 35.84 percent on month, from $7.25 billion to $9.84 billion. That total was the second biggest ever after the $9.88 billion recorded back in July, 2008;

>A new record was set by the goods gap with Vietnam, and in fact, May’s $10.66 billion figure was the third new all-time high in the last three months and the fourth this year. These results largely reflect Vietnam’s mounting attractiveness versus China as a destination for export-focused foreign investment – in part due to the Trump tariffs and in part due to all the worsening difficulties of doing business in China;

>The goods deficit with the eurozone was up 8.08 percent, and worse is likely to come as the single currency keeps weakening versus the dollar and Europe, too, seems heading into or is already mired in a new recession;

>But despite the continuing weakening of the yen, the goods deficit with Japan fell by 6.86 percent. The ongoing global semiconductor shortage still plaguing the auto industry in particular looks like a big culprit here.

(What’s Left of) Our Economy: Continued Worsening Both for America’s Growth and its Trade Deficit

Tags

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

The final (for now) official U.S. report on the change in the economy’s output (gross domestic product, or GDP) during the first quarter of this year came in this morning, and just as the estimates of sequential shrinkage have gotten slightly worse since the initial read two months ago, so did the estimates of the nation’s trade deficit. As known by RealityChek regulars, that’s one of the worst combinations of economic data possible.   

And although the growth-cutting impact of these swelling trade shortfalls remained unrevised from the 3.23 percentage points recorded in the previous GDP read, it’s still bigger than the 3.20 percentage points estimated in the initial release, and sizable by any measure. Indeed, it was big enough to represent the difference between quarterly growth and quarterly contraction.

First, the overall GDP results. The Commerce Department now judges the economy to have shriveled by 1.58 percent at annual rates after adjusting for inflation. (The measure most widely followed.) That’s worse than both the second estimate (a 1.52 percent decline) and the first read (1.42 percent). This confirmation of first quarter contraction, moreover, means that the economy has now officially proceeded halfway toward a recession according to the most common definition: two straight quarters of real GDP decreases.

The trade gap has widened similarly – from the initially reported inflation adjusted and annualized $1.5417 trillion to $1.5435 trillion to today’s $1.5447 trillion.

This total amounts to a new all-time quarterly high, and the seventh straight such record registered. The real growth bite of this deficit wasn’t a record in absolute terms. That distinction belongs to the third quarter of 2020. But that period’s 3.25 percentage point hit to inflation-adjusted GDP came in the context of that quarter’s roaring comeback from the short but deep CCP Virus-induced downturn from earlier that spring. So the trade deficit’s impact was barely noticed.

Without such a big (14.41 percent) sequential jump in the trade deficit, the economy would have expanded by 1.65 percent at real annual rates in the first quarter – no great shakes by any means, but certainly better than a slump.

In addition, on a relative basis, the 3.23 percentage point drag on first quarter growth stayed the biggest ever – slightl eclipsing the 3.22 percent drag on the 1.53 percent total real GDP contraction way back in the second quarter of 1982.

Moreover, the quarter-to-quarter swing in the trade gap’s growth impact – from a 0.23 percentage point hit during the fourth quarter – was the biggest since mid-2020, when the 1.53 percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter.

And for good measure, the sequential swing in the trade gap’s absolute growth impact between the fourth quarter of 2020 – when a small worsening of the inflation-adjusted trade deficit subtracted just 0.23 percentage points from growth – to the first quarter remained the biggest since mid-2020. Then, a percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter. But again, that latter figure came during a quarter of 30.19 percent annualized constant dollar growth!

The newest increase in the price-adjusted quarterly trade deficit also generated a new record in terms of its share of the overall economy. As of today, the real trade gap represents 7.83 percent of inflation-adjusted GDP – compared with the 7.82 percent calculable last month.

One bottom line: The after-inflation trade deficit is now 82.24 percent higher than in the fourth quarter of 2019 – the last quarter before the CCP Virus’ arrival began seriously affecting and especially distorting the economy. That’s not so far from a doubling.

Today’s GDP report showed that total inflation-adjusted exports fared a little better in the first quarter than first estimated. The new $2.3613 trillion inflation-adjusted annualized figure is 0.15 percent higher than the second read’s and 0.29 percent above the first’s.

Yet these overseas sales are still down 1.23 percent from last year’s fourth quarter and fell sequentially for the fourth time in the nine quarters that have passed since the first pandemic-affected quarter (the first quarter of 2020). Further, these exports are still 7.52 percent lower than immediately before the virus’ arrival in force, in the last quarter of 2019.

The total first quarter real imports numbers, however, have continued to rise, too. This morning’s constant dollar annualized figure of $3.9060 trillion was up 0.12 percent from the second read and 0.25 percent from the first.

As a result, the first quarter remains the new record-holder for quarterly total after-inflation imports, and the all-time high is still the fifth in a row. The sequential increase of 4.42 percent, moreover, is still the biggest since the 17.29 percent explosion between those second and third quarters of 2020, and total price-adjusted imports are now up 14.85 percent since that last pre-pandemic fourth quarter of 2019.

Interestingly, the new GDP report also confirmed that the nation’s trade in goods has been improving modestly while trade in services – not only the economy’s biggest sector, but the one hit hardest by the pandemic – has been deteriorating.

In this vein, the final estimate of the real goods trade deficit came in at $1.6572 trillion at annual rates. That figure is 0.65 percent smaller than that in the second GDP report, and 0.68 percent less than the initial result.

At the same time, the new total is still a seventh straight record, and the increase of 12.88 percent over the $1.4681 trillion gap reported for the fourth quarter of last year remained the biggest sequential increase since the 20.40 percent surge between the second and third quarters of pandemic-ridden 2020. Moreover, the new first quarter total is 54.68 percent higher than the $1.0714 trillion during the fourth quarter of 2019 – the last data quarter before the CCP Virus began playing havoc with the economy and economic data.

By contrast, the new estimate shows that the chronic U.S. services trade surplus keeps decreasing. The latest figure for the first quarter – $109.3 billion in real terms at annual rates – was fully 8.15 percent lower than the second estimate and 9.59 percent smaller than the first. Due to this third estimate, the services surplus fell by 9.88 percent from the fourth quarter’s $120.1 billion real annualized total, and has been cut by more than half (51.79 percent) from its $226.7 billion level in the immediate pre-pandemic fourth quarter of 2019.

The goods and services trade divergence has marked both the export and import performances comprising the above trade balance figures. For goods exports, the final estimate for the first quarter ($1.7577 trillion annualized and adjusted for inflation) was up 0.33 percent from the second estimate and 0.54 percent from the first.

But real goods exports still dropped by 1.97 percent between the last quarter of 2019 and the first of 2022, this sequential fall-off (like that for total real exports) remains the fourth in the nine pandemic-affected quarters, and it’s still the biggest such decrease since that registered between the first and second quarters of pandemic-y 2020 (23.08 percent). And since the fourth quarter of 2019, goods exports are still off by 1.39 percent.

By contrast, constant dollar goods imports results have come down during the first quarter – though not in a straight line. The new total of $3.4149 trillion on a real, annualized basis is 0.15 percent below the second read but just 0.05 percent below the first.

Today’s real goods imports figure, though, was also the second straight all-time high and a 4.72 percent increase over the fourth quarter figure – the greatest sequential increase since the 6.80 percent rise in the fourth quarter of 2020. These imports, moreover, are now 19.66 percent above their fourth quarter, 2019 level.

The after-inflation services exports estimates, however, kept weakening in the first quarter GDP reports. The $631.5 billion real annualized total reported today was a 0.61 percent improvement over the fourth quarter’s $627.7 billion, the second straight quarterly gain, and the best quarterly result since the $695.3 billion recorded in he first quarter of 2020.

But it was down 0.28 percent from the second read and 0.33 percent from the first. and since the final pre-pandemic fourth quarter of 2019, these exports have plunged by 18.38 percent.

As for the price-adjusted services imports estimate, it grew quickly in the first quarter. The third read of $522.2 billion at price-adjusted annual rates is 1.54 percent higher than the second and 1.85 percent above the first. And these purchases were 2.88 percent higher than the fourth quarter total.

This final (for now!) first quarter after-inflation services imports figure is the highest since the $547 billion figure for the fourth quarter of 2019. But since then, these purchases have sagged by 4.53 percent.

A glass-half-full type might point out that this final first quarter GDP report — and the last few official monthly trade releases, might represent peak trade deficit for the United States.  But a glass-half-empty type tight counter that the main reason could be an economic slowdown and possibly imminent recession that would primarily — and finally — depress Americans’ importing and other spending. That’s hardly the ideal formula for narrowing the trade gap and indebtedness it fuels.  But it’s one that seems unavoidable for now.         

(What’s Left of) Our Economy: Is the New (April) U.S. Trade Report a False Dawn?

Tags

Advanced Technology Products, Biden, Census Bureau, China, Donald Trump, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, services trade, South Korea, stimulus, supply chains, Switzerland, tariffs, Trade, trade deficit, Zero Covid, {What's Left of) Our Economy

Although today’s new official figures showed a major dropoff in the U.S. trade deficit between March and April, and the results came from a normally encouraging combination of more exports and fewer imports, the Census data also show that big caveats and questions are hanging over these results and how enduring they might be.

First and foremost, the improvement in the combined goods and services deficits, and all virtually all the trade balances comprising it, could be resulting from a dramatic slowdown in U.S. economic growth. Second, the latest decline in the chronic and huge U.S. goods trade gap with China surely stems from Beijing’s recent over-the-top (but surely temporary) Zero Covid policies, which have further snagged already tangled up supply chains. And third, large revisions in some of the numbers (especially for services trade) inevitably cast some doubt as to their reliability lately.

In fact, these features of the report – along with the still-near historic levels of many of these trade deficits and other usually typical gap-widening developments like a strong U.S. dollar and still-astronomical levels of economic stimulus from Washington – are telling me that my prediction last month of higher deficits to come will age pretty well.

Not that the narrowing of the trade gap in April was bupkis. The combined goods and services deficit fell 19.11 percent from March’s all-time high of $107.65 billion (which itself was revised down a hefty 1.96 percent) to $87.08 billion. This level was the lowest since December’s $78.87 billion and the nosedive the biggest since December, 2012’s 19.85 percent.

And as just mentioned, the improvement came from the right combination of reasons. Total exports hit their third straight monthly record, rising 3.49 percent from an upwardly revised (by 0.99 percent) $244.11 billion to $252.62 billion

Overall imports, meanwhile, tumbled 3.43 percent from their record $351.79 billion to $339.70 billion. The total was the second biggest ever, but the decrease was the greatest since the 13.16 shrinkage during pandemic-y and recession-y April, 2020.

The trade shortfall in goods was down 15.04 percent from a downwardly revised (by 1.04 percent) $126.81 billion in March to $107.74 percent in April. This level, too, was the lowest since December’s $100.52 billion, and the 15.04 percent sequential tumble the biggest since April, 2015’s 15.09 percent.

Goods exports rose sequentially by 3.57 percent in April, from 170.04 billion to a third consecutive record of $176.11 billion. And U.S. purchases of foreign goods sank by 4.38 percent on month in April, from a downwardly revised (by 0.65 percent) record $296.85 billion to $283.84 billion (as with total imports, the second highest result of all time). The decrease was the biggest since the 12.79 percent drop in that pandemic-y April, 2020.

But even the above sizable revisions paled before those made for services trade. The March surplus was upgraded fully 4.48 percent, from $18.34 billion to $19.16 billion, and the April figure grew by another 7.83 percent to $20.66 billion – the highest level since December’s $21.66 billion.

Services exports (apparently) deserve much of the credit. They reached an all-time high of $76.52 billion. This total bested May, 2019’s previous record of $75.41 billion by only 1.46 percent, but the milestone is significant given the outsized hit suffered by the service sector worldwide during the pandemic period.

April services exports, moreover, rose 3.30 percent from March’s $74.07 billion – a total that itself was revised up by 4.23 percent.

Services imports set their third consecutive monthly record in April, rising 1.73 percent, to $55.86 billion, from March’s upwardly revised (by 4.19 percent) $54.19 billion.

A big April fall-off also came in the non-oil goods trade deficit – known to RealityChek regulars as the Made in Washington trade deficit, because by stripping out figures for oil (which trade diplomacy usually ignores) and services (where liberalization efforts have barely begun), it stems from those U.S. trade flows that have been heavily influenced by trade policy decisions.

This shortfall decreased by 14.72 percent in April, to $108.68 billion, from March’s downwardly revised record $127.42 billion. The drop was the biggest since March, 2013’s 16.74 percent.

The enormous and persistent manufacturing trade deficit retreated in April from record levels, too. But even though the month’s $124.41 billion shortfall was 12.71 percent lower than March’s all-time high $142.22 billion, and even though the monthly decline of 12.71 percent was the biggest since pandemic-y February, 2020’s 23.09 percent, this deficit was still the second biggest ever.

April’s manufactures exports of $109.36 billion were 4.03 percent lower than March’s record $113.96 billion, but were still the second best total on record. Ditto for the month’s manufactures imports, which tumbled 8.85 percent from their March record of $256.18 billion to $233.50 billion.

Another April fall-off from a record monthly deficit came in advanced technology products (ATP). After ballooning by 73.65 percent sequentially in March, to $23.31 billion, the recently volatile gap narrowed in April by 21.50 percent, to $18.30 billion.

Both the better manufactuing and ATP trade figures surely stemmed at least in part from the Zero Covid policies that interfered with so much industrial production from China. The U.S. goods deficit with the People’s Repubic, however, narrowed by just 10.02 percent on month in April, from $34 billion to $30.57 billion. Even so, the level was the lowest since last July’s $28.56 billion.

U.S. goods exports to China were down on month in April by 16.25 percent (their biggest drop since February, 2021’s 278.85 percent), from $13.38 billion to $11.20b. This total is the lowest since last September’s $11.03 billion.

The much greater amount of U.S. goods imports from China plummeted 11.82 percent n month in April, from $47.37 billion to $41.77 billion – the lowest level since last July’s $40.32 billion.

Also notable – breaking a pattern going back several years — the 10.02 percent April monthly drop in the U.S. goods deficit with China was smaller than the month’s sequential decline in the non-oil goods deficit (14.72 percent). And on a yar-to-date basis, the China deficit is up only slightly less (27.59 percent) than the non-oil deficit (28.95 percent). So the next few months’ worth of data may shed some light on whether the Trump (now Biden) tariffs on China are losing their effectiveness, or whether the last few months’ numbers are anomalies.

Other significant April results for individual U.S. trade partners: The goods deficit with South Korea set a new record of $4.09 billion – 23.79 percent higher than March’s total of $3.30 billion and 21.70 percent greater than the old record of $3.36 billion set last September.

And the goods deficit with Switzerland cratered in April by 67.63 percent, to $2.89 billion, from March’s $8.93 billion level. The percentage shrinkage of this bilateral trade gap was the biggest since September, 2018, when a $1.22 billion U.S. deficit turned into a $149 million surplus.

Making News: Back on National Radio Tonight Talking China Tariffs and Inflation…& More!

Tags

Biden, Biden administration, Breitbart.com, CBS Eye on the World with John Batchelor, China, GDP, Gordon G. Chang, inflation, Janet Yellen, John Carney, Making News, tariffs, trade deficit

I’m pleased to announce that I’m scheduled to return tonight to “CBS Eye on the World with John Batchelor.” The segment, slated to air at 11:15 PM EST, will feature John, me, and co-host Gordon G. Chang discussing a bad recent idea that can’t seem to be killed off entirely – proposals to fight lofty U.S. inflation by cutting tariffs on some goods imports from China.

You can listen live at this link, and as usual, I’ll be posting a link to the podcast as soon as one’s available.

In addition, it was great to see my latest post on the trade deficit’s damaging impact on the shrinkage suffered by the U.S. economy in the first quarter of this year cited last Thursday by Breitbart.com‘s John Carney. Here’s the link.

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

(What’s Left of) Our Economy: A Deeper U.S. Contraction and a Bigger Trade Bite

Tags

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

This morning Americans and the rest of the world found out that the U.S. government now believes that the American economy shrank a little more during the first quarter of this year than first estimated. And the details show that the nation’s towering and still-soaring trade deficit was a major culprit.

According to today’s release from the Commerce Department, the combined goods and services trade gap for the quarter totaled $1.5435 trillion at annual rates adjusted for inflation. That new record total – the seventh straight such all-time high – was 0.12 percent greater than the $1.5417 trillion dollar gap reported by Commerce in its first look at the changing size of the economy (termed the gross domestic product, or GDP).

And accompanying this finding was the news that the first quarter’s inflation-adjusted contraction was 1.52 percent at annual rates – not the 1.42 percent previously reported. So last month’s thoroughly depressing picture of an economy shrinking as its trade deficit surges (which last occurred in the first quarter of 2020) became slightly grimmer.

The swelling trade deficit reduced first quarter real GDP by 3.23 percentage points – more than the 3.20 percentage point subtraction estimated in the initial first quarter GDP report. For good measure, this growth loss was the worst in absolute terms since the 3.25 percentage point hit suffered during the third quarter of 2020 – when the economy roared back from the short but deep CCPVirus-induced downturn earlier that spring.

Yet that lost growth figure was dwarfed by the actual expansion that occurred (an a blazing 30.19 percent annualized in real terms). The trade deficit’s impact on the first quarter of this year helped turn slow growth into shrinkage. Specifically, had the already astronomical trade shortfall simply not gotten worse between the fourth quarter of last year and this year’s first quarter, the economy would have expanded by 1.71 percent

Worse, the growth toll exacted by the ballooning trade deficit in relative terms reached a new record. The 3.23 percentage point drag on an economy that shriveled by a total of 1.52 percent was slightly bigger than the 3.22 percent drag on the 1.53 percent total contraction recorded in the second quarter of 1982 – the previous all-time high.

Moreover, the quarter-to-quarter swing in the trade gap’s growth impact – from a 0.23 percentage point hit during the fourth quarter – was the biggest since mid-2020, when the 1.53 percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter.

Because the real trade deficit during the first quarter was rising faster than first thought even as the overall economy was shrinking faster, the gap’s share of real GDP set a new record, too – 7.82 percent, compared with the 7.81 percent calculable from last month’s initial first quarter numbers. And the increase in this figure over its fourth quarter counterpart was a full percentage point.

In line with that latter result, the latest first quarter trade deficit figure now exceeds the fourth quarter level by 14.32 percent, not the 14.19 percent calculable from last month’s GDP release. That sequential increase remained the biggest since the 31.81 percent jump between the second and third quarters of 2020 – again, when the economy was bouncing back rapidly from that pandemic-induced cratering, not getting smaller.

And all told, the after-inflation trade deficit is now up 82.10 percent since the fourth quarter of 2019, the last quarter before the CCP Virus’ arrival began seriously affecting and especially distorting the economy.

The first quarter U.S. constant dollar goods trade deficit actually came in fractionally smaller in this morning’s government release than reported last month – $1.6680 trillion at annual rates versus $1.6685 trillion. Still a seventh straight record, this total now tops that of the fourth quarter by 13.61 percent, not the 13.65 percent calculable last month. Nonetheless, that increase remained the biggest since the 20.40 percent surge between that second and third quarter of 2020. And since that last pre-pandemic fourth quarter of 2019, the goods trade deficit has swelled by 55.58 percent.

By contrast, the new estimate shows that the chronic U.S. services trade surplus reached only $119 billion – 1.57 percent lower than the initially reported $120.9 billion. This new figure produced the first sequential decline in this surplus since the second quarter of 2021. Since the fourth quarter of 2019, this surplus has been cut nearly in half – by 47.51 percent, to be precise – as the virus has hit global activity in this sector unusually hard.

As for total inflation-adjusted exports, they’re now judged to be 0.14 percent higher in the first quarter than initially reported – $2.3577 trillion annualized versus $2.3545 trillion. But they’re still 1.38 percent lower than in the fourth quarter, and the sequential decrease remained the fourth in the nine quarters since that first pandemic-affected quarter – the first quarter of 2020. Moreover, in real terms, combined goods and services exports are still off by 7.66 percent since pre-pandemic-y fourth quarter, 2019.

Total inflation-adjusted first quarter imports are also now estimated as higher than initially reported (by 0.13 percent). Therefore, the $3.9012 trillion annual level still represents the fifth consecutive quarterly record. Meanwhile, the new 4.29 percent quarterly increase was the biggest since the 7.04 percent recorded between the third and fourth quarters of 2020 – when the economy was growing. As a result, total real imports are now 14.71 percent greater than in the fourth quarter of 2019.

After-inflation goods exports of $1.7519 trillion were slightly (0.12 percent) higher in the first quarter than previously reported, but still down 2.29 percent from the fourth quarter level. That decrease, moreover, was still the biggest since the 23.08 percent nosedive between the first and second quarters of 2020 – when the CCP Virus-induced downturn hit. And they, too, have fallen on a quarterly basis for four of the nine quarters that have passed since the pandemic first arrived in force in early 2020. In all, goods exports are now 1.72 percent lower than their immediate pre-pandemic levels.

Price-adjusted goods imports were also slightly (0.09 percent) higher in the first quarter than initially reported. The $3.4199 trillion annualized total was still the second straight all-time high and the second straight increase, and the 4.87 percent quarterly rate of increase still the fastest since the 6.80 percent rise in the fourth quarter of 2020. These overseas purchases have now increased by 19.83 percent since that final pre-pandemic fourth quarter of 2019.

Real services exports, however, were 0.05 percent weaker in the first quarter than initially judged – $633.3 billion at annual rates as opposed to $633.6 billion. Even so, that total climbed for the second quarter in a row (by 0.89 percent), and represented the best level since the $695.3 billion annualized recorded for the first quarter of 2020. All the same, and again, reflecting the outsized CCP Virus blows taken by the sector, constant dollar services exports have fallen by 18.15 percent since the last pre-pandemc quarter.

Yet price-adjusted services imports were revised up by a significant 0.31 percent during the first quarter, and the $514.3 bi1lion annualized level was 1.32 percent higher than the fourth quarter total and represented the strongest real services import total since the $547 billion annualized figure for the fourth quarter of 2019.

These new overall GDP numbers confirm that the U.S. economy’s growth has been slowing markedly (as does this usually pretty on-target forecast for the second quarter). But with one possible exception, all the forces and developments cited in my trade and GDP post last month pointing to continued increases in the inflation-adjusted U.S. trade deficit remain in place, ranging from the strong dollar, the Federal Reserve’s stated determination to reduce growth in order to fight inflation, and continued economic troubles in major U.S. trade partners like the European Union and China – which, along with the robust greenback, figures to curb American exports.

The possible exception – recent stock market declines start to crimp American consumer spending in a reversal of the wealth effect. But even if such caution appears, purchases of imports would need to fall much faster than buys of domestically produced goods and services in order even to retard the trade deficit’s surge, and this kind of favorable outcome for the economy is hardly a guarantee.