Manufactured Exports Lag Obama’s Goal by Record Margin in June

August 11, 2014

www.bea.gov/newsreleases/international/trade/2014/pdf/trad0614.pdf

Last week the Bureau of Economic Analysis announced that the U.S. trade deficit fell by $3.1 billion to $44.1 billion.  It was the second monthly decline in a row, but there’s little evidence of a long-term improving trend.  Check out the chart:  Balance of Trade.  The general improving trend that was evident for a couple of years, beginning in early 2012, ended early this year when the rapidly worsening deficit in manufactured goods swamped a decline in oil imports.  Though the deficit in manufactured goods improved by $3.0 billion in June, you can see from the following chart that a quickly worsening trend remains in place:  Manf’d Goods Balance of Trade.

Most of the improvement in the manufactured goods deficit was driven by a decline in imports.  (Such declines are usually followed by a big jump the following month.)  But the improvement was also helped by a small $0.8 billion rise in exports.  In January of 2010, President Obama set a goal of doubling exports within five years.  Though he wasn’t specific about the type of exports, it’s reasonable to believe that the plan was for manufactured exports to contribute their fair share toward that goal.  It didn’t happen in June.  The $0.8 billion rise was less than half of the $1.8 billion it needed to rise in order to keep pace with the president’s goal.

Nothing new there.  That’s been true nearly every month for the past three years.  Exports have risen by only $0.7 billion since March of 2012, while they needed to rise by $42.4 billion to keep pace with the president’s goal.  The result is that manufactured exports now lag the president’s goal by $45.9 billion – a record shortfall that exceeds the entire trade deficit.    Here’s a chart that shows both manufactured exports and imports:  Manf’d exports vs. goal.

Contrary to all the hype about a “manufacturing renaissance,” the decline of the manufacturing sector of our economy has continued unabated during the Obama administration.  It’s not a surprise.  The president has ignored the import side of the trade equation – the side he has the power to affect if only he had the will and courage to do so, and instead took the chicken’s way out, setting a goal for exports, over which neither he nor anyone else in the U.S. has any control, since it’s determined solely by foreign demand.  In effect, he washed his hands of U.S. trade policy, but did it in a way that he hoped would give the appearance of being a champion for American workers.  Shame on him.

 

 

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Why Incomes are Stagnant or Declining

August 5, 2014

OK, it’s time for something completely new and original.  This began with the release of 2nd quarter GDP (gross domestic product) a couple of weeks ago.  The Bureau of Economic Analysis (BEA) announced that the economy grew at a 4% annual rate in the 2nd quarter – the most impressive economic performance of the supposed recovery from the deep recession of a few years ago.  Of course, that slightly bigger pie is now shared by slightly more people – 1% more each year – so in per capita terms the economy grew by 3%.  But even that is decent growth.  Here’s a chart of real (adjusted for inflation) per capita GDP:   Real Per Capita GDP.  Looking at the chart, you can see that per capita GDP has recovered, but is barely above the level of 6-1/2 years ago.

Last week, the BEA also announced that the economy added more than 200,00o jobs in July, adding to a string of such results.  But the report also noted that wages barely budged in July, rising by only a penny per hour.  When you consider that the top 1% of wage earners are rolled into that data, you realize that wages for 99% of us are in decline.

What gives?  How is it that wages aren’t rising in an economic environment of 4% growth and consistent monthly job gains of 200,000 plus?  It’s a question that has vexed economists and the Federal Reserve.

It boils down to a question of what drives the demand for labor.  Growth in per capita GDP should translate into growth in the demand for labor.  But there’s another factor at work that I touched on in Five Short Blasts but I’ve barely mentioned since – productivity growth.  So I thought it would be interesting to go back and calculate the annual rate of growth in per capita GDP, minus the rate of growth in productivity.  Although GDP and population data go back further, productivity data is only available as far back as 1947.  So that’s the base year for my data, and is assigned a value of “1.”  Each succeeding year, that figure is reduced or increased, depending on whether the combination of per capita GDP growth and productivity growth yielded a slightly positive or negative percentage change in this “demand for labor.”  Here’s the chart of the results:  % Change in GDP per capita minus productivity.

From 1947 until 1963, there was a general downward trend.  Then, over the next 36 years, an upward trend reversed the losses of the previous 16 years, reaching a peak in 1999 at a level clearly above that of 1947.  But what really blew me away was what happened next.  Beginning in 2000, this figure fell like a rock and, in ten short years, wiped out all of the gains of the previous 36 years, and continued falling to a record low reached in 2010.  Since then, it’s begun to recover, but ever so slowly.  Last year it was still below the previous low reached in 1963.

Now this is a piece of data that rings true.  Doesn’t it feel like what’s been going on?  Remember the “jobless recovery” for which President Bush took so much criticism?  This shows you that it was real.  And it shows you just how much damage the recession that began in 2008 did to the economy.

What’s driving this decline?  The growth in per capita GDP has fallen dramatically since 2000.  It’s no longer keeping pace with the growth in productivity.  To illustrate the point, here’s the average change in per capita GDP by decade:

  • 1950’s = 2.43
  • 1960’s = 3.17%
  • 1970’s = 2.17%
  • 1980’s = 2.20%
  • 1990’s = 2.21%
  • 2000’s = 0.62%
  • 2010-2013 = 1.50%

Meanwhile, productivity growth has remained fairly constant at around 2.2%.

This slow-down in per capita GDP is even more remarkable when you consider the extraordinary measures that have been taken in the last few years to prop up the economy.  Since 2000, the national debt has more than tripled from $5.7 trillion to over $17 trillion today.  And, in the past few years, the Federal Reserve has poured in an additional $4 trillion.  That’s over $15 trillion of “stimulus” since 2000.

One has to consider the possibility that the inverse relationship between population density and per capita consumption is at work here, and we’ve reached the tipping point where leaning on population growth to fuel the economy is backfiring and eroding per capita GDP.

 


August 1, 2014

http://www.bls.gov/news.release/empsit.nr0.htm

The Bureau of Labor Statistics (BLS) announced this morning that the economy added 209,000 non-farm jobs in July (according to the establishment survey) while the unemployment rate ticked up to 6.2% (according to the household survey).  Regarding the latter figure, the employment level rose by 131,000 while the civilian work force grew by 329,000.  In reality, population growth figures indicate that the labor force actually grew by 122,000.  The result is that per capita employment (or employment to population ratio) held steady at the depressed level of 45.9%.  Here’s the chart:  Per Capita Employment.

The jobs picture has definitely brightened in the past few years, but not as much as we’re led to believe.  While official BLS figures would have us believe that unemployment has fallen to 6.2% from a recession-high of 9.9% in April of 2010, those figures are skewed lower by claims that people have simply dropped out of the work force.  A more accurate reading, one that grows the labor force in proportion to the growth in the population (after all, people do need a source of income), shows that unemployment has fallen to 9.6% from a recession high of 11.9% in June, 2011.  The difference is what I call the “detachment from reality index.”  Here’s a chart of how the government’s figures have become more detached from reality since the onset of the recession, obscuring just how bad the employment picture has become:  Detachment from Reality Index.

There’s been a lot of excitement about the brisk pace of economic growth in the 2nd quarter, and much of that growth is real.  But it’s also a snap-back from the steep decline in GDP caused by the harsh winter in the first quarter.  Already, economic data is beginning to indicate that the 2nd quarter was a flash-in-the-pan, catch-up quarter and that growth is beginning to flag.

The other day, Reuters ran an article about the Federal Reserve being puzzled by stagnant wages, given the (supposed) growth in jobs and decline in unemployment.  (I tried to resurrect that article, but now can’t find it.)  The answer lies in examining the growth in GDP vs. the growth in population and  rising productivity.  More on that in an upcoming post.