(What’s Left of) Our Economy: The Virus Keeps Trade Figures, Like the Whole U.S. Economy, on a Roller Coaster

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Advanced Technology Products, CCP Virus, China, coronavirus, COVID 19, goods imports, imports, lockdowns, manufacturing, reopening, shipping, Trade, trade deficit, West Coast ports, Wuhan virus, {What's Left of) Our Economy

Since I keep writing that U.S. trade figures – as well as other economic data – have been and continue to be thoroughly distorted by the sudden stop-start nature of the CCP Virus-era economy, it seems time to replace my usual monthly format with one that shows just how out-of-the-ordinary trade flows have become.

The best evidence? The latest (March) monthly changes in imports reported today by the Census Bureau. Although the understandable headlines for the press coverage of this release focused on the record shortfalls in the overall trade gap ($74.45 billion) and in the goods shortfall ($91.56 billion), to me, the real story for March concerns the big, practically across-the-board jumps in American purchases from abroad – which of course also owe in part to the long-awaited easing of big (virus-related) backups in the West Coast ports through which so many goods enter the nation from Asia. (This congestion has also hampered American exports.)

So on to the March import figures. For combined goods and services, these purchases rose by 6.34 percent sequentially, to $274.45 billion. The absolute total is an all-time record, and the monthly increase the biggest since July’s 10.88 percent, when the economy was starting its first reopening phase.

Goods imports alone grew by 6.98 percent on-month in March, to $234.44 billion. That advance was also the biggest since July, when they surged by 12.31 percent. And the actual March level was the highest on record, too.

Interestingly, the import flows affected most by tariffs and other U.S. trade policy decisions – in goods other than oil – climbed a bit more slowly in March than overall goods imports: by 6.48 percent, to an all-time best (worst?) $217.69 billion. As with that non-oil goods category, the sequential rise was the fastest since July (12.18 percent), but these inflows rose only half as much.

The CCP Virus effect seems to have been especially pronounced in manufacturing. March imports of industrial goods hit a record $207.59 billion, and soared by 22.98 percent sequentially. That increase was the biggest since March, 2015 – when a 23.44 percent rise largely represented a February slump caused by harsh winter weather. By contrast, manufactures imports grew strongly last July, too – during the first economy-wide virus rebound – but by just 12.08 percent.

Within manufacturing, advanced technology imports in March, at $44.54 billion, fell short of their all-time high ($47.25 billion in October, 2018). But the sequential increase of 24.06 percent was the greatest since that weather afffected March, 2015 (24.87 percent).

March goods imports from China expanded a healthy 18.23 percent sequentially in March. But the $40.23 billion monthly total was well below record levels, too. This increase was also way less than the 59.02 percent rocket ride these purchases took in April, 2020, but that occurred when China’s economy was rebounding from its own CCP Virus lockdown. So the March figure could indicate that the Trump tariffs have started to fail.

At the same time, March goods imports from Asia-Pacific countries as a whole (a U.S. government grouping that includes China) ballooned by 25.11 percent on month – considerably faster than China’s increase, and their biggest monthly rise since that weather-affected March, 2015 (32.43 percent). That’s evidence that the Trump tariffs have indeed kept disadvantaging China.

As a result, even if the March trade figures simply extend an already lengthy string of CCP Virus-era official U.S. economic data, and say little about the economy’s fundamentals or even the effectiveness of U.S. tariffs, it still seems valuable to me to be reminded every now and then just how out-there these statistics remain.

(What’s Left of) Our Economy: A Spring-y New U.S. Manufacturing Production Report

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aerospace, automotive, Biden, Boeing, CCP Virus, coronavirus, COVID 19, Donald Trump, Federal Reserve, health security, imports, industrial production, inflation-adjusted output, infrastructure, machinery, manufacturing, pharmaceuticals, PPE, real growth, semiconductor shortage, stimulus, supply chain, tariffs, Trade, trade war, vaccines, ventilators, West Coast ports, Wuhan virus, {What's Left of) Our Economy

You might call today’s March U.S. manufacturing production figures from the Federal Reserve a good news/bad news/good news story. Moreover, the new data on inflation-adjusted factory output contained a surprise worth noting.

First the good news/bad news/good news. The Fed report showed that real domestic manufacturing output rose by 2.79 percent on month in March. That was the best such result since July’s 4.25 percent – much earlier during the recovery from the deep CCP Virus- and lockdowns-induced recession. Rebounds from major downturns tend to be strongest earliest, especially for highly cyclical sectors of the economy like manufacturing, and that surely went double for a slump largely caused by an outside shock like a pandemic and dramatic government responses, rather than one caused by a market-based economy’s ordinary fluctuations.

The bad news was that this robust growth followed a February sequential drop of 3.72 percent that was the worst monthly performance since pandemicky April’s 15.83 percent plunge. Moreover, this revised February figure was a significant downgrade from the initially reported 3.12 percent decline. The other revisions, going back to October, were too small to affect the picture over the last few months.

But then there’s that second piece of good news: As the Fed’s release explained this morning, the lousy February numbers “largely resulted from widespread outages related to severe winter weather in the south central region of the country.” So they stemmed from a (temporary) outside shock, too.

The surprise? Although the U.S. automotive industry continues reducing production due to a global shortage of semiconductors, output in price-adjusted terms grew by 2.79 percent sequentially in March. At the same time, the February fall-off was revised down from 8.26 percent to ten percent even. And the shortage is expected to undercut vehicle production until the fall, so that’s a drag likely to weigh on the overall manufacturing figures for months.

The total March manufacturing figure means that domestic industry’s after-inflation production has grown by 22.88 percent since its recent low-point last April, and has climbed back to within 1.73 percent of its last pre-pandemic reading in February, 2020.

Manufacturing’s monthly current dollar output gains were broadbased in March, including in the crucial machinery sector. In this industry, whose products are widely used not only throughout manufacturing, but in many other important segments of the economy like construction and agriculture, price-adjusted production improved by 2.87 percent. And now it actually stands 2.16 percent higher than during that last pre-CCP Virus month of February, 2020.

Although the semiconductor shortage is bound to crimp production in many industries on top of automotive, domestic manufacturing still seems to be benefiting from two headwinds other than the economy’s generally improving strength that seem to have some staying power, too. The first is aerospace giant Boeing’s continuing, but sometimes uneven, progress exiting its protracted recent safety and manufacturing problems. The pandemic’s blow to air travel worldwide clearly didn’t help, either.

But in March, real output in aircraft and parts jumped by 4.09 percent sequentially, and is now fully 5.07 percent above its February, 2020 pre-CCP Virus level.

The picture was more mixed in the pharmaceutical and medicines category – which includes vaccines. Inflation-adjusted output advanced by 2.90 percent on month in March, but the previously reported January and February numbers were both downgraded dramatically – from an upwardly revised 2.57 percent to 0.85 percent, and from a 1.29 percent rise to a 0.05 percent dip. These moves left the sector’s output 5.83 percent higher than in pre-pandemic February, 2020 with the prospect of more impovement to come as vaccine production continues to boom.

Growth is still lagging, however, in the vital medical equipment and supplies sector – which includes virus-fighting items like face masks, face masks, protective gowns, and ventilators. February’s constant-dollar production was revised up from a 0.56 percent monthly decline to a 0.44 percent drop – but it was still a drop. Growth returned in March – but only by 0.61 percent in real terms. So price-adjusted output in this category – which includes many other products – is still slightly (0.39 percent) below pre-pandemic February, 2020’s levels, despite all the national talk of the need to improve America’s health security.

I’m still bullish on manufacturing’s outlook, though. No one should forget headwinds facing industry aside from the semiconductor shortage – chiefly, the fading of vaccine production at some point, the distinct possibility of many more regulations and higher taxes from a Democratic-conrolled federal government, and the supply chain disruptions resulting largely from clogged West Coast ports (which on top of the Trump tariffs are slowing the import of many foreign inputs still needed by Made in the USA companies).

But arguably more than offsetting these dangers is the so far better-than-expected resumption of total U.S. growth, the virtual certainty of even yet another gigantic dose of stimulus an infrastructure spending, along with President Biden’s decision to retain every dollar’s worth of those sweeping, often towering Trump trade curbs.

Yet much more important than my views is the continuing optimism registered by domestic manufacturers in all of the soft data surveys that come out each month from the private sector and from various branches of the Federal Reserve system. If they’re full of confidence, who am I to rain on their parade?

(What’s Left of) Our Economy: A Record U.S. Trade Gap – & Cause for Trade Optimism??

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American Jobs Plan, Biden, Buy American, CCP Virus, Census Bureau, China, coronavirus, corporate taxes, COVID 19, Donald Trump, exports, goods trade deficit, green energy, imports, lockdowns, Made in Washington trade flows, Pacific Rim, reopening, semiconductor shortage, services trade, subsidies, supply chains, tariffs, tax policy, taxes, Trade, trade deficit, vaccines, West Coast ports, Wuhan virus, {What's Left of) Our Economy

Despite the overall U.S. trade deficit hitting an all-time monthly high in February, the new trade figures released by the Census Bureau this morning contained lots of encouraging news – including for fans of the Trump tariffs on China and on aluminum and steel (like me). I’m wary of running or continuing a victory lap, because there’s still too much short- and perhaps longer term economic noise surely masking the underlying trends. But the case for trade optimism and its possible policy causes deserves attention.

As for that economic noise, it comes of course not only from the ongoing stop/start CCP Virus- and lockdowns-/reopenings/vaccinations-related distortions of all economic data, but from the harsh winter weather that depressed February economic activity in key areas of the country like Texas; the global shortage of semiconductors that’s impacting output throughout the manufacturing sector (and that’s due in part to the pandemic); and the big backups at the West Coast ports that are greatly slowing the unloading of container ships containing lots of imports from China and the rest of Asia.

As for the data, the combined goods and services trade shortfall of $71.08 billion in February surpassed the previous record, November’s $69.04 billion, by 2.95 percent, and represented a 4.80 percent increase over January’s downwardly revised level of $67.82 billion.

The increase resulted both from a rise in the goods trade gap (of 3.27 percent, to its own record of $88.01 billion) and a shrinkage of the services surplus (of 2.93 percent, to $16.93 billion – the smallest since August, 2012’s $17.08 billion).

Trade flows not setting records, though, notably included any of the imports categories – despite numerous reports of the rapidly rebounding U.S. economy sucking in massive amounts of products (though not services, which have suffered an outsized CCP Virus blow) from abroad.

For example, total merchandise imports actually fell on month in February – by 0.89 percent, to $221.14 billion, from January’s record total of $221.12 billion. Still, the February figure remains in second place historically speaking.

Non-oil goods imports inched up by 0.38 percent sequentially in February – from $85.36 billion to $85.68 billion. But they still fell short of the November record of $86.40 billion. As known by RealityChek regulars, this trade category sheds the most light on the impact on trade flows of trade policy decisions, like tariff changes and trade agreements. (Hence I call the resulting shortfall the Made in Washington trade deficit.) But despite the lofty level, they’re actually down on net since November. Could it be those West Coast ports snags or the harsh winter storms of February or semiconductor-specific problems? Maybe.

The evidence for those propositions? U.S. goods imports from Pacific Rim countries – which are serviced by the West Coast ports – did sink by 11.81 percent on month in February. That’s a much faster rate than the 1.54 percent decrease in overall non-oil goods imports (a close proxy).

But goods imports from China dropped by a greater 13 percent even, which points to some Trump tariff effect as well. In fact, the $34.03 billion worth of February goods imports from China was the lowest monthly number since pandemicky last April. And February’s $24.62 billion bilateral merchandise trade deficit with China was 6.22 percent narrower than the January figure, and the smallest such total since April, too.

America’s goods deficit from Pacific Rim countries in total fell slightly faster than the gap with China (6.84 percent). China’s economy and its exports, however, are supposed to be recovering at world-and region-beating rates, so if that’s the case, it appears that the Trump trade curbs are preventing that rebound from taking place at America’s expense.

U.S. manufacturing trade numbers were encouraging, too, though again, the impact of tariffs as opposed to that of the virus distortions or the February weather or the ports issues or the semiconductor shortage or some combination thereof  is difficult to determine. But industry’s trade shortfall did tumble by 10.53 percent in February, from January’s $99.79 billion to $89.29 billion. That figure also was manufacturing’s lowest since June, 2020’s $89.16 billion and the 10.52 percent decrease was the by far the biggest in percentage terms since November, 2019’s 12.70 percent.

February manufacturing exports declined by 2.64 percent sequentially, from $81.66 billion to $79.51 billion. But the much greater volume of manufacturing imports sank by 6.98 percent, from $182.46 billion to $168.79 billion.

The China and manufacturing numbers could certainly change – and boost these U.S. trade gaps and the overall trade deficit – as Americans begin to spend their latest round of stimulus checks, as the U.S. recovery continues, and as the West Coast ports and semiconductor issues clear up. 

But especially due to those Chinese exports, this worsening of the U.S. trade picture was reported late last year. And the official U.S. trade figures show that such a surge simply never took place. Moreover, if executed properly, President Biden’s Buy American plans for federal government procurement and support for strengthening critical domestic supply chains could boost American manufacturing and other goods output without increasing imports. His budget requests for major subsidies for key U.S.-based manufacturing operations could help brighten the trade picture, too. Mr. Biden has also decided for now to retain the Trump trade curbs. And P.S. – those clogged West Coast ports hamper American exports as well.    

In addition, trade problems could reappear at some point due to the President’s proposed green energy mandates and corporate tax increases that would inevitably hike the relative cost of producing in the United States. But right now, it looks like due to ongoing and possibly upcoming economic nationalist American policies, the burden of proof is on the U.S. trade pessimists. And that’s quite a switch.

(What’s Left of) Our Economy: No, the Trade Deficit’s Worsening Isn’t “Transitory”

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competitiveness, debt, exchange rates, exports, Federal Reserve, imports, manufacturing, recovery, strong dollar, Trade, Trade Deficits, West Coast ports, {What's Left of) Our Economy

I’m continually grateful to Bloomberg BusinessWeek’s Peter Coy for his interest in my tracking of the manufacturing trade deficit, and in particular, how it keeps setting new records — the latest being reported yesterday morning.  In fact, his coverage contrasts especially favorably with that of manufacturing-focused publications and websites themselves.  They devote no attention to these figures at all, even though if what we think we know about international trade is remotely on target, surging trade shortfalls are signalling dismal and perhaps worsening global competitiveness for domestic industry.

So I was a little disappointed to see Peter’s post also repeated the conventional wisdom about the dreadful overall U.S. trade figures released yesterday, and how they mainly reflect clearing up West Coast ports backlogs that are temporarily and unnaturally boosting import numbers.

There’s no doubt that the ports improvement juiced the import number — and helped it rise by a record 7.70 percent month-to-month in March.  But trade goes two ways, remember?  Exports headed abroad through West Coast ports were clogged up, too.  Certainly manufacturers and especially farmers and ranchers had been complaining about their reduced or threatened access to Asian markets in particular.  So has Commerce Secretary Penny L. Pritzker.  Yet the improving West Coast ports situation only resulted in a 0.88 percent monthly rise in U.S. overseas sales.

Nor does the strong dollar – whose recent weakness is also touted as a reason for optimism about future trade flows and their impact on growth – explain adequately why the latest trade figures showed imports rising nearly nine times faster than exports. The exchange rate argument is especially inadequate at a time when the American economy expanded so much more slowly in the first quarter.

Although yesterday’s stunning export-import growth disparity will probably moderate going forward, there’s absolutely no reason to believe it will vanish, or even improve significantly.  Indeed, the latest trade figures should remind us that enormous structural differences exist between the United States and its main trade partners, and that among their leading effects has been making America much more open to imports than they are.

Therefore, until these structural differences are reduced to some meaningful extent, as long as the U.S. economy keeps growing at all, we can expect the trade deficit to keep increasing, to keep slowing that growth, and to keep it ever more dependent on accumulating debt.  Worse, the faster deterioration of the trade deficit impacted most by trade deals and related policies — the non-oil goods deficit — makes clear that current trade policies and the agreements being negotiated now have been part of the problem, not part of the solution.

The Federal Reserve has taken the habit of describing adverse trends it hasn’t predicted as stemming from “transitory” factors — one big reason that it has stuck with a super-easy monetary policy that at best has been yielding ever less impressive results.  Yesterday’s coverage sadly indicates that such hopium — and denialism — is now characterizing the conventional wisdom on trade.