U.S. Birth Rate Falls to 100-Year Low

http://www.usatoday.com/news/health/2010-08-27-birth-decline_N.htm?loc=interstitialskip

Now for a little good news for a change.  As reported in the above-linked USAToday article, the National Center for Health Statistics reported on Friday that the birth rate fell in the U.S. in 2009 by 2.7% to 13.5 births per 1,000 people, its lowest level in a century. 

“When the economy is bad and people are uncomfortable about their financial future, they tend to postpone having children. We saw that in the Great Depression in the 1930s and we’re seeing that in the Great Recession today,” said Andrew Cherlin, a sociology professor at Johns Hopkins University.

This is great news – a significant improvement from the 14.14 birth rate at the time that I wrote Five Short Blasts – but still above the rate of 12.73 needed to reach stability in the native population.  But just as significantly, as the professor observed above, it’s proof that peoples’ decisions about whether to have more children is indeed influenced by economic conditions.  I have had people argue that there is no such effect, and they offer the example of single mothers on food stamps and welfare who continue to have more and more children.  While there may be isolated examples like that, the overall decline in the birth rate is proof that they are wrong.  This is significant because it’s proof that population management policies aimed at achieving stability through economic incentives, as I proposed in Five Short Blasts, will indeed work without the need to resort to coercive, draconian measures like the one-child policy employed by China.

But, alas, the article goes on to bemoan falling birth rates as some sort of economic threat:

The downward trend invites worrisome comparisons to Japan and its lost decade of choked growth in the 1990s and very low birth rates. Births in Japan fell 2% in 2009 after a slight rise in 2008, its government has said. 

Not so in Britain, where the population took its biggest jump in almost half a century last year and the fertility rate is at its highest level since 1973. France’s birth rate also has been rising; Germany’s birth rate is lower but rising as well. 

“Our birth rate is still higher than the birth rate in many wealthy countries and we also have many immigrants entering the country. So we do not need to be worried yet about a birth dearth” that would crimp the nation’s ability to take care of its growing elderly population, Cherlin said.

 Very true, we do not have to worry about a “birth dearth” if nothing changes.  However, we do have to worry about the consequences of overpopulation, not least of which is declining per capita consumption and a corresponding rise in unemployment and poverty.

I’ll take the “birth dearth” any day.

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2nd Qtr. GDP Hints at Slow-Motion Depression

The Commerce Department released it’s latest revision to 2nd quarter GDP yesterday, cutting it from an annual growth rate of 2.4% to just 1.6%.  So I’ve revised my figures for real per capita GDP, both with and without stimulus spending.  (It’s important to track the latter as an indication of what’s happening in the underlying economy, and what will happen when the stimulus spending ends.)  Here’s the updated chart:

Real Per Capita GDP

Strip away the stimulus spending, and real per capita GDP (GDP adjusted for population growth) fell at an annual rate of 3.8%.  This is faster than the rate of decline during any quarter of the financial melt-down that took place from the 1st quarter of 2008 through the 3rd quarter of 2009.  Real per capita GDP, with stimulus spending factored out, is now down by 8.7% from its peak in the 4th quarter of 2007.  Over the last five years, dating back to the 3rd quarter of 2005, real per capita GDP with stimulus spending removed has risen in only five quarters out of twenty. 

GDP declines during the Great Depression were much worse:

• 1930:  – 8.6%
• 1931:  – 6.4%
• 1932:  – 13%
• 1933:  – 1.3%

A decline of 3.8% (with stimulus spending factored out) doesn’t rise to these levels.  But a decline of 8.7% from its peak 2-1/2 years ago does, although it’s happening at a slower pace.  So it begs the question:  is the U.S. trapped in a slow-motion version of the 1930s Great Depression?  As the stimulus spending winds down by the end of this year, we’ll have a better idea.  But given the huge decline in the housing market following the expiration of the tax credits, the soaring trade deficit, the slow-down in manufacturing and rising first-time jobless claims, it’s not looking good.

More Band-Aids for Trade Policy Arterial Bleed

http://www.reuters.com/article/idUSTRE67P0M620100826

The above-linked Reuters article details yet another in the long-running series of “get tough” trade initiatives that are designed more to create the impression of doing something about our trade imbalance and less about doing anything substantive about it. 

I don’t need to go on.  The first comment at the end of the article is mine and pretty much says it all.

You Heard It Here First – 2nd Qtr. GDP Stoked by Stimulus Spending

http://www.reuters.com/article/economicNews/idUSN2426976220100824

Forgive me for taking a moment to toot my own horn but, in the Reuters article for which I’ve provided a link above, Reuters has finally taken note of the same thing I reported on August 5th – that 2nd quarter GDP was propped up by enormous stimulus spending, without which the economy may very well have sunk back into recession.  (See https://petemurphy.wordpress.com/2010/08/05/shocking-2nd-quarter-gdp-report-points-to-further-recession/)

The real story here is that, with stimulus spending ebbing fast, the economy is in very serious trouble, a point that each new economic report seems to be driving home.  And with each passing day, the Obama administration seems increasingly delusional in its belief that the economy is slowly on the mend.  No wonder that Obama supporters are rapidly losing faith.  Just as sadly, Republicans seem just as clueless about the need to fix broken trade policy.  Batten down the hatches.  We’re in for a hell of a storm!

$US-MXN Exchange Rate vs. U.S. Balance of Trade with Mexico

Continuing my series that examines the correlation (or lack thereof) between currency exchange rate and its effect on the balance of trade between the U.S. and various nations, we now turn our attention to Mexico.   Here’s the chart of currency exchange rate (between the dollar and the Mexican peso, or “MXN”) vs. the balance of trade between the U.S. and Mexico.

$US-MXN Rate vs Balance of Trade

This is the strangest chart we’ve seen yet, for a lot of reasons.  First of all, in 1993, Mexico devalued their currency by a factor of 1,000, lopping three zeroes from the value of the peso.  Secondly, the North American Free Trade Agreement (NAFTA) went into effect at the beginning of 1994.  The result is that a tidy surplus of trade with Mexico instantly vanished, to be replaced by a rapidly exploding trade deficit.

So, from 1990 through 2009, the American dollar actually soared by almost 5,000%, and our balance of trade went from surplus to a huge deficit.  This is what economics would predict.  However, when we do a year-by-year analysis, we find little correlation between exchange rate and the balance of trade.  There were some years in which the dollar fell; yet the trade deficit continued to worsen dramatically.  Exactly 50% of the time, the balance of trade moved as economists would predict in reaction to changes in currency valuation, while it moved in the opposite direction the other 50% of the time.  For this reason, I’ve given the exchange rate between the U.S. and Mexico a score of “no correlation” on our correlation tracking chart:

Theory Correlation Score

This may not seem fair, since there seems to be a strong correlation when the whole 19-year time span is considered.  A much stronger dollar coincides with a much worse balance of trade.  But “coincides” seems to be a good choice of words because it seems to be nothing more than pure coincidence.  The fact is that a long-term trend of deteriorating economic conditions in Mexico has continued to erode the value of their currency, in spite of their enormous trade surplus with the U.S., keeping wages depressed and exacerbating the trade imbalance.  Under normal circumstances, such a large trade surplus should have resulted in rising wages in Mexico, eventually leading to the restoration of something closer to a balance of trade.  But Mexico’s slow but steady backward march from developing nation to 3rd world status prevents normal economic mechanisms from functioning.

So Mexico lands right on the trend line that has been taking shape as we’ve added more countries to this analysis.  The balance of trade with nations with a relatively low population density seem to respond as economists would predict to currency valuation changes, as evidenced by a correlation score greater than 0.5.  But, for more densely populated nations, the correlation falls below 0.5 and there is no tendency whatsoever for trade imbalances to improve in response to a falling dollar.

Next up:  the U.K.

*****

Currency exchange rate data provided by www.oanda.com/

$US-DEM/EUR Exchange Rate vs U.S. Balance of Trade with Germany

Continuing our series of examining the effect of exchange rate on the balance of trade between the U.S. and its major trading partners, we now turn our attention to Germany.  Previously, we have seen that the effect of changes in the exchange rate on the balance of trade has been as economists would predict when the U.S. is dealing with countries roughly equal in population density or less densely populated – countries like Australia, Canada, Brazil and Colombia.  When the dollar falls, our balance of trade improves, and vice versa.  However, the predicted effect seems to break down when dealing with nations far more densely populated – nations like Japan and China.  Changes in the currency exchange rate seem to have no effect whatsoever or, if anything, yield the opposite effect.  That is, a decline in the dollar is more likely to result in a worsening of America’s balance of trade.  Or more likely, a worsening trade deficit yields a decline in the dollar, as economists would predict, but that decline is powerless to offset the effects of population density disparity and reverse the deficit, contrary to what economists would predict.

So let’s see what happens in America’s trade with Germany, another nation far more densely populated than the U.S., by a factor of 7.  Here’s a chart of the U.S. balance of trade with Germany vs. the exchange rate between the dollar and the Deutschmark (prior to 1998) and the dollar and Euro (following the adoption of the Euro in 1998). 

$US-DEM&EUR Rate vs Balance of Trade

In the case of Germany, there is no correlation, positive or negative, whatsoever.  Exactly 50% of the time, the balance of trade responded as predicted by economists in response to changes in the exchange rate.  But the other 50% of the time, changes in the exchange rate yielded the opposite result.  And look at the changes over the full period of time for each currency.  From 1990 to 1997, a small 7% rise in the dollar (from 1.61 DEMs to 1.73 DEMS) resulted in a 62% worse trade deficit – much worse than the small rise in the dollar would predict.  But from 1998 through 2009, a 21% decline in the dollar from .92 EURs to .727 EURs yielded only a 7.6% improvement in the trade deficit.  By far, most of that decline in the deficit was due to the global economic crisis that took hold in late 2008.  If we take away 2009 trade results, a 21% decline in the dollar actually resulted in a 40% worse trade deficit with Germany.  Were it not for the global economic crisis in 2009, we would conclude that the effect of a falling dollar is actually contrary to what economists predict. 

Here’s an update of the correlation tracking mechanism, with these results for Germany now included:

Theory Correlation Score

As you can see, a trend is taking shape.  When dealing with countries of similar population density, the correlation score tends to be greater than .5, indicating that changes in exchange rate produce the changes in trade balance that ecnomists predict.  But, when the trading partner is more densely populated (and the break seems to occur at about 2.0, when nations are at least twice as densely populated as the U.S.), the effect breaks down, and a weakening dollar has virtually no effect on reversing trade deficits. 

On the other hand, my theory of the effect of population density on per capita consumption and on trade imbalances has accurately predicted in all but one case so far (trade between the U.S. and Colombia) whether the trade imbalance would be a surplus or deficit. 

Next up:  Mexico.

*****

Exchange rate data provided by http://www.oanda.com/

June Trade Deficit Hi-Lites Futility of Obama Trade Policy

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

I’ve been gone for a couple of days and am just catching up on Wednesday’s news about the trade deficit.  (A link to the report is provided above.)  I just about fell over when I heard the report on the news.  The trade deficit exploded in June to $49.9 billion from $42 billion in May, by far the worst montly trade deficit since the beginning of the global financial crisis in October, 2008. 

As bad as it sounds, the details are even worse.  Swings in the deficit have often been the result of a big change in oil imports.  But, in June, petroleum imports actually fell by almost a billion dollars.  The deficit in non-petroleum goods exploded by 24% from $32.2 billion in May to $40 billion in June. 

Exports fell by 2.2%, though exports remain pretty much on track for meeting the president’s goal of doubling exports in five years.  But any improvement in exports has been swamped by imports.  Here’s the charts:

Obamas Goal to Double Exports, 1st year          Obamas Goal to Double Exports

Those two charts don’t look all that alarming until the balance of trade is plotted:

Balance of Trade

When the president took office, the trade deficit was in free-fall, right along with the rest of the global economy.  Four months after he took office, it fell to less than $25 billion – little more than a third of its all-time high before the onset of the recession.  This alone probably had more to do with stabilizing the economy than anything associated with the stimulus plan.  But since then, in only 13 months, the trade deficit has more than doubled and the economy is on the brink of sinking back into recession. 

The president’s economic strategy is in shambles.  He naively counted on nations like China, Germany and Japan to honor their pledges to depend less on exports and more on growth in their domestic economies.  And he crossed his fingers and proclaimed that we’ll double exports in five years.  All in the hope of restoring some balance to the global economy.  Predictably, this strategy is proving to be an abysmal failure.  What little boost manufacturing has gotten from some growth in exports has been dwarfed by a tidal wave of imports.  Unemployment remains stubbornly high and a mountain of stimulus spending has barely kept GDP out of the red.  The economy stands once again at the brink.