Employment Level Falls 56,000 in June; Unemployment Edges Up to 8.8%; 432,000 Discouraged Job-Seekers Give Up

July 2, 2015

The headline for today’s employment report for the month of June reads “Employment Increased by 223,000 in June, and the unemployment rate declined to 5.3%.”  It’s hard to believe that that headline, and the headline of this blog post were both taken from the same report, isn’t it?  Well they were.  And I could have added to my headline a couple more facts:  that the employment figures for April and May were revised downward by 60,000 and that there were no wage gains in June.

In fact, that headline figure of 223,000 jobs added in June, taken from the establishment survey, is probably the only positive in the whole report.  (If it can even be believed.)  The positive from the household survey – a drop in unemployment to 5.3% – falls apart when you see why it dropped.  It seems that 432,000 long-term unemployed have simply given up looking for work.  Put them back in the equation, along with the other workers who previously and mysteriously vanished from the work force, and unemployment actually rose to 8.8%.

In November of 2007, 48.4% of the U.S. population participated in the labor force.  Since then, the U.S. population has grown by 19 million, but only 16% of them have been added to the labor force.  This is how the Obama administration has been able to claim a sharp drop in the unemployment rate – by understating the size of the labor force.  Here’s a chart of per capita employment since November, 2007:  Per Capita Employment.  While per capita unemployment has improved from the depths of the recession, it’s still at a deeply recessionary level.

One of the less-noticed statistics in the report, but perhaps the most telling about the state of the economy, is that employment in manufacturing was flat yet again in June.  In a separate report this morning, factory orders fell for the ninth time in ten months, and new factory orders and shipments are running 6% and 4% behind year-ago levels.

The Obama administration has continued the practices of previous administrations that exacerbate the demise of the middle class through immigration policy that floods the labor force with unneeded workers and trade policy that is detached from the realities that drive trade imbalances and turns a blind eye to a $600 billion/year trade deficit in manufactured goods.

The Problem with TPP

June 14, 2015

On Friday, the House of Representatives dealt a major blow to what would have been a crown jewel in President Obama’s economic plan – the “Trans Pacific Partnership” (TPP) trade deal that he has worked for his entire presidency.  It’s a good thing.  Had he gotten the fast track trade authority he was seeking in order to steamroll this trade deal through Congress, it may well have sounded the death knell for the American auto industry, and perhaps even American manufacturing in general.

The problem with TPP can be summed up in two words – population density – and its failure to take this factor into account.  The TPP is a deal that has been negotiated between the U.S. and eleven other countries:  Australia, Brunei , Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  Of these eleven nations, five are less densely populated than the U.S. – Australia, Canada, Chile, New Zealand and Peru.  The United States enjoys a surplus of trade in manufactured goods with every one of them – a surplus totaling almost $103 billion.

Of the remaining six nations, one – Brunei – is a net oil exporter.  The U.S. enjoys a surplus of trade in manufactured goods with all net oil exporters since oil is priced in dollars, and dollars can only be spent in the U.S.  Another – Singapore – is a tiny city-state and the U.S. enjoys a surplus of trade with nearly all such city-states.  Why?  Because manufacturing requires some serious real estate, something that city-states lack.  Their dense populations necessitate an economy built around services, like banking, for example.  That leaves four nations more densely populated than the U.S. – Japan, Malaysia, Mexico and Vietnam.  The U.S. suffers a trade deficit in manufactured goods with all four nations – a deficit totaling almost $155 billion.

A surplus with all five less densely populated nations of $103 billion vs. a deficit with all four more densely populated nations of $155 billion.  This is no coincidence.  It’s yet another demonstration of the power of population density in driving global trade imbalances.  It dwarfs all other factors in international trade.  Low wages, currency manipulation, lax labor and environmental standards – none of these things amount to a hill of beans in comparison to the effect of population density.  Compared to the citizens of less densely populated nations, those living in intensely crowded conditions such as you find in these four nations consume comparatively nothing, but are every bit as productive.  The result is that these nations come to the trade table with massive labor forces desperate for work, but offer nothing in return except puny markets emaciated by low per capita consumption.  Huge trade deficits with such nations are inescapable without the use of tariffs.

Many believe that globalization and free trade has already wiped out tariffs.  It has eliminated and reduced many, but consider this:  the American truck market, unlike the automobile market, is still protected by a 25% tariff.  Because of this, virtually every pickup truck and every larger truck, up to and including semis, are built in the U.S.  Take away that tariff, as TPP has vowed to do, and you can kiss the U.S. truck industry goodbye.  One might argue that that isn’t so – that the U.S. auto industry still thrives without the tariffs.  However, it thrives not because of tariffs but because of quotas, something else that will vanish under TPP.  If the American truck-building industry and what’s left of the auto industry vanishes, there’s a good possibility that a domino effect may very well lead to the collapse of virtually all of American manufacturing.

Trade policy that fails to account for the effect of population density has proven to be an unmitigated disaster for the U.S. economy for decades.  President Obama seems hell-bent to make matters worse, just as he did with the deal with South Korea that, in only a couple of years, has cost thousands of Americans their jobs.  Let’s pray that our congressmen will continue to stand fast against any further such hare-brained deals.

America’s Best Trading Partners

June 7, 2015

In my previous post, we examined a list of America’s twenty worst per capita trade deficits in manufactured goods in 2013.  We saw that the list was heavily dominated by very densely populated nations.  Eighteen of those twenty nations were more densely populated than the U.S. (most being far more densely populated) and the average population density was 504 people per square mile – almost six times the population density of the U.S.  And we also saw that low wages had nothing to do with these deficits.  Most of these nations were among the wealthiest in the world.  We concluded that population density was clearly the driving force behind these trade deficits.

If that’s true – that population density affects our balance of trade – then we should see the opposite effect at the other end of the scale.  The list of America’s largest per capita trade surpluses in manufactured goods should be dominated by nations with lower population densities.  Here’s the list:  Top 20 Surpluses, 2013.  There are far fewer densely populated nations on this list, but there are seven that are more densely populated than the U.S.:  United Arab Emirates, Qatar, Belgium, Brunei, Panama, the Netherlands and Kuwait.  Of these seven, it’s important to note that four are oil exporters.  (Net oil exporters are highlighted in yellow.)  Since oil is priced in dollars, which can only be spent on U.S. products and services, it’s inevitable that these nations appear on the list, regardless of their population density.

That leaves only three of the twenty nations on this list that seem to defy the population density effect – Belgium, the Netherlands and Panama.  Belgium and The Netherlands are tiny, neighboring European nations whose economies are heavily dependent on trade and who take advantage of a unique asset –  they share the only European seaport on the non-Baltic Atlantic coast.  Both import and then re-sell American-made goods.

The average population density of the nations on this list is 197 people per square mile.  However, the weighted population density – the total population of the nations on this list divided by their total land mass – is only 17 people per square mile.  Compare that to 358 people per square mile – the weighted population density of the nations that account for our twenty worst per capita trade deficits.  17 vs. 358.  Could the role of population density in driving trade imbalances be any more clear?

It’s also interesting to note that the nations on the list of our best surpluses represent nine million square miles of the earth’s surface.  The nations that account for our worse deficits – deficits that total far more than our surpluses, represent only 5.4 million square miles.

Finally, it’s important to note that the average purchasing power parity (PPP) of the nations on our list of our best surpluses is $38,725.  That’s little different than the average PPP of the nations on the list of our worst deficits – $35,330.  In other words, wealth (analogous to wages) plays no role whatsoever in determining trade imbalances.

And yet we go on pretending that population density doesn’t matter, applying free trade policy to all of them, just as we have for well over a half century.

America’s Worst Trade Partners in 2013

May 26, 2015

Top 20 Deficits, 2013

In a recent previous post, I reported that the U.S. suffered a record trade deficit in manufactured goods with those half of nations above the median population density, and a healthy surplus with the other half of nations. The relationship between population density and trade imbalance is clear.

To make it even more clear, let’s take a look at the opposite ends of the spectrum of trade imbalances – those nations with whom we have the worst trade deficits in manufactured goods and those nations with whom we enjoy the biggest surpluses. This post will look at the top twenty deficits. In order to factor out the geographic size of nations as a factor, these trade imbalances are expressed in per capita terms – dollars per person.

Above is a link to a spreadsheet showing the top twenty per capita trade deficits in manufactured goods in 2013. The following are some observations about this list:

  • Of these top twenty nations, eighteen are more densely populated than the U.S. Most are much more densely populated. The average population density of the nations on this list is 504 people per square mile. This is almost six times the population density of the U.S.
  • The thing that may surprise people the most is that China, the nation everyone thinks of first when the subject of our trade deficit comes up, barely makes the list of the top 20 deficits, coming in at number 17. In per capita terms, our deficit with other nations including Israel, Taiwan, Japan, South Korea and a number of European nations, is much worse.
  • Low wages are often blamed for our trade deficit in manufactured goods. Manufacturing jobs, it is said, are shipped overseas to take advantage of cheap labor. So I’ve included the “purchasing power parity” (or “PPP”) – essentially the gross domestic product of each nation per person – to see whether this claim holds water. PPP is a measure of the purchasing power of the citizens of each nations, and is a good indication of the average wages paid. As you can see, our worst deficit are with rather wealthy nations. (By comparison, the PPP of the United States in 2013 was $49,000.) The average of PPP of these twenty nations is $35,330. Only two nations are below $10,000: China and Nicaragua. It should be noted that China’s PPP has more than doubled in the last eight years. If “low wages” were the cause of trade deficits, then we should begin to see our deficit with China decline as PPP rises. Instead, our trade deficit with China set a record in 2013. Our trade deficit with Switzerland, the wealthiest nation on this list, also worsened in 2013 to $1,859 per person from $1,680 in 2012, moving Switzerland from 3rd to 2nd place on this list.
  • South Korea moved from 12th place in 2012 to 11th place in 2013 as our trade deficit with them worsened from $426 to $496 per person. Our deficit with South Korea continues to worsen dramatically in the wake of the 2012 trade deal which the Obama administration hailed as a “big win for American workers.”
  • In the most dramatic move on the list, Malaysia went from 13th place in 2012 to 21st place – vanishing from the list – as our trade deficit with them was cut in half in 2013. This allowed Mexico to move up to 13th place in spite of a 20% decline in our deficit.

There are a couple of key take-aways from this list. First is that population density plays the major role in determining trade imbalances. If it did not, one would expect the ratio of more densely populated nations to less densely populated nations to be somewhere around 1:1. Instead, the ratio here is 9:1. Secondly, low wages clearly have absolutely nothing to do with these trade deficits. This list is heavily skewed toward wealthy, high-wage nations like Ireland, Switzerland, Germany, Japan, Israel, Taiwan, Denmark and others.

The problem with attempting to trade freely with these badly overpopulated nations is not that their wages are too low. The problem is that they buy too little from the U.S., thanks to a level of per capita consumption that has been decimated by their extreme population densities. People who live in such crowded conditions simply can’t consume products at the same level as people who live in more reasonably populated conditions like we enjoy in the U.S.

Trade Deficit in Manufactured Goods Shatters Record

May 7, 2015

The trade deficit in manufactured goods soared to $62.9 billion in March, obliterating the previous record of $52.1 billion set only two months earlier.  Here’s the chart:  Manf’d Goods Balance of Trade.  The overall trade deficit also hovered near its record level.  The deficit is far worse than expected and will almost surely result in a revision to 1st quarter GDP that will put the economy in contraction.

The port slowdown on the West Coast that was resolved in mid-March is surely to blame for some of the sudden jump, but not that much.  To blame the port slowdown on a sudden, big jump in imports also suggests that it should have made up for a slow-down in previous months.  Look again at the chart.  There’s absolutely no evidence of any slowdown.  The trade deficit had continued to worsen at a steady pace in the months leading up to March.

Normally, such a big jump in the deficit could be explained by a robust economy that was gathering steam, driving a demand for imported products.  But that’s not what’s happening.  The economy slowed in a big way in the 4th quarter of last year and then either completely stalled in the 1st quarter of this year or actually contracted.

Some may blame the strong dollar, claiming that it hurts exports and makes imports more affordable to American consumers.  However, exports in March were at the same level that they’ve been at for over three years.  (So much for the President’s promise of doubling exports.)  And an exchange rate-fueled shift toward imported products vs. domestically manufactured products only makes sense if the price for imported goods has actually been cut.  Can anyone cite any examples of such price cuts?  (Remember, oil is not a manufactured product.)  Also, a big demand for imports would also be corroborated by a jump in consumer spending data.  There’s been no such jump.

What’s actually happening is that the pace at which manufacturing is shifting overseas is accelerating, which is exactly what should be expected when free trade policy continues to be applied to badly overpopulated nations.

Though it rarely does, the stock market reacted to the trade data with a big drop over concerns about the decline in GDP that would result.  I find it puzzling that an economy and political system so focused on growth continues to tolerate a huge trade deficit knowing that it’s a major drag on growth.  Why is it that economists and political leaders and the Federal Reserve, who are willing to try every trick in the book to fuel economic growth, turn a blind eye to the one thing – fixing our idiotic trade policy – that’s assured to do more than all other remedies combined to make our economy grow?

Effect of Population Density on Trade Sets Record in 2013

May 4, 2015

Each year I vow to publish this analysis in a more timely manner and, it seems, that each year it gets tougher to do.  But this is a massive undertaking, so I hope you’ll cut me some slack.

First, a little about my methodology is in order.  For each nation, I tallied the imports from and exports to that nation for hundreds of end-use-code product categories.  For example, here’s a link to the web site that tallies the imports from China:  http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c5700.html.  That’s just the imports.  There’s another page for exports to China.  Those are then combined, and the end use codes that represent manufactured products are identified and tallied.  Population data is taken from the CIA World Fact Book web site, and is up-to-date through 2013.  So, with all of that said, I think you can understand the difficulty involved in compiling this data for 166 countries.*

This chart, updated through 2013, shows the U.S. balance of trade in manufactured products with the half of nations above the median population density, and the other half of nations below the median population density: Deficits Above & Below Median Pop Density.  In 2013, with the half of nations below the median population density (182 people per square mile), the U.S. enjoyed a surplus of trade in manufactured products of $147 billion.  (It should be noted that the U.S. population density is approximately 87 people per square mile.)  In stark contrast, the U.S. suffered a trade deficit in manufactured goods with the half of nations above the median population density of $634 billion – a record.  And the disparity between the two figures – $781 billion – is also a record.  The same number of nations.  A huge contrast in results.  And, the longer the U.S. continues to pursue free trade policy that ignores the role of population density, the worse the disparity becomes.

It’s also interesting to note that the half of nations above the median population density occupy only 25% of the earth’s land mass.  This means that the U.S. has a surplus of trade in manufactured goods of $147 billion with 75% of the earth’s land mass (outside the U.S.).  With the remaining 25% – the densely populated 25% – the U.S. has a trade deficit of $634 billion.

This data is undeniable proof of a powerful relationship between population density and trade in manufactured products, a relationship first revealed in Five Short Blasts.  Without some mechanism (like tariffs) to counter the effect of population density, it’s a near certainty that trade with very densely populated nations will yield a large trade deficit and result in the loss of many manufacturing jobs.

In upcoming posts I’ll dig deeper into the 2013 data for more evidence of the role of population density in trade, and to examine whether the other popular scapegoats – low wages and currency exchange rates – play any role at all.

In the meantime, I’ll also begin compiling the 2014 data!


* Small island nations are excluded from the study, since they enjoy unique economies, usually based on tourism.  Also excluded are tiny city-states.

Baltimore Orioles’ John Angelos NAILS IT!

May 1, 2015


If you didn’t see CBS This Morning today, then you have to watch this interview.  Baltimore Orioles Executive Vice President John Angelos explains a tweet he made concerning the real root cause of the riots in Baltimore.  He lays the blame squarely at the feet of “political elites” who have shipped American jobs overseas.  I encourage you to watch the interview (link provided above) if you can suffer through the dumb Toyota Camry ad that precedes it.  But the following quote from the interview says it all:

…my greater source of personal concern … is focused rather on the past four decade period during which an American political elite have shipped middle class and working class jobs away from Baltimore.

He went on to explain that by “American political elite” he means both Democrats and Republicans who have embraced this trade policy.  His analysis of the situation in Baltimore is dead on.  As is the case throughout America, there is a seething anger over what trade has done to our economy and, as we’ve seen with the Freddie Gray case, any spark can set it off.

Good for you, Mr. Angelos!  I’ve suddenly become an Orioles fan!


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