Shocking Explosion in Trade Deficit in March!

May 9, 2022

On March 29th, in the wake of the release of the January trade data, I wrote that the U.S. economy may be beyond repair. The release of the March trade data this past week should erase all doubt about that. Never in my worst nightmare did I think that what happened in March was even possible. As bad as the trade deficit had become, the March deficit completely demolished the previous record. It didn’t just set a new record; it blew past February’s record by $20 billion, a 22% increase IN ONE MONTH! The increase was driven by imports, which soared $33 billion past the previous month’s record of $319 billion.

No doubt most will think that increase can be blamed on the higher price of oil imports. Well, think again. Oil imports rose by only $1.5 billion, while oil exports rose more, resulting in a $1.5 billion surplus in the trade of oil. No, the increase in the trade deficit was driven entirely by manufactured goods, where the deficit jumped by $24.6 billion, $22.1 billion (21%) higher than the record set in January. The increase was across the board of categories of manufactured goods: industrial supplies and materials; capital goods; vehicles, parts & engines; and consumer goods. You’d better be sitting down when you look at these charts: March trade deficit; March trade deficit in manufactured goods.

If you’ve been wondering why inflation is spiraling out-of-control, this is your answer. The explosive growth in government spending has fueled an equally explosive demand for goods, nearly all of which are imported. Well, you might think, at least American manufacturers must also be enjoying this expansion in demand. Right? Think again. As this explosion in imports has been taking place, American manufacturing is in serious decline. Look at this chart of the U.S. ISM Purchasing Managers Index, a good measure of manufacturing activity. It actually fell through the first quarter and, more recently, plunged in April. Why? “The US manufacturing sector remains in a demand-driven, supply chain-constrained environment.” In other words, U.S. manufacturers can’t get the materials, equipment and parts – most notably semiconductor chips – that they need. For example, auto imports jumped dramatically in March while American production slowed due to lack of “chips.” Living in the Detroit area, I can tell you that once-empty lots are now over-flowing everywhere in this area with unfinished cars and trucks, unfinished because they’re awaiting the installation of computer chips. You have to see it to believe it.

In that same post on March 29th, I speculated on the supply of Javelin anti-tank missiles in the wake of Ukrainian President Zelensky’s request for 1,000 missiles per day to be delivered, and doubted that we had the capacity to produce even ten per day. Yesterday, on CBS’s “Face the Nation,” hosty Margaret Brennan interviewed Jim Taiclet, CEO of Lockheed Martin, maker of the Javelin missiles. Mr. Taiclet reported that his company’s capacity for production of those missiles is 2100 per year which, assuming a 5-day work week, is a capacity of eight missiles per day. (My guess of ten per day was pretty close, huh?) Clearly, there’s no chance in hell of providing Ukraine with the 1,000 missiles per day that they requested.

Mr. Taiclet also confirmed that each missile requires 250 “chips.” He said that they have enough chips today to keep production running at current levels, but would be supply-constrained beyond that. In addition it would take years to scale up significant additional capacity.

Meanwhile, China remains in a lock-down which, they claim, is an effort to stamp out the Covid virus. Does that make any sense to you? Given that the Covid virus no longer exists in its original state, and that we’re now dealing with subvariants of subvariants that no longer have the lethality of the original virus, the pandemic is for all intents and purposes over. Yet we’re to believe that it’s so bad in China that they’ve locked down entire cities? There’s something else going on. I believe that what’s happening is that China is implementing the final stage of a strategy to wipe out America’s manufacturing capability to the extent that it’s even unable to maintain its armed forces. Think about it. The war in Ukraine is sucking up all of America’s munitions while, at the same time, China is choking off our ability to replenish. The day may be rapidly approaching when Russia and China defeat the U.S. without even firing a shot, since we may not have a bullet left to fire.

Our politicians and media may not be able to see what’s happening, but Wall Street sure does. Inflation alone doesn’t explain the ongoing market crash. Not even fear of a recession can explain it. Clearly, there’s growing fear of something much worse – perhaps the end of our economy as we know it, if not the outright demise of the United States itself.


February Trade Deficit Ties Record Set in January

April 7, 2022

At $89.2 billion, the February trade deficit, released by the Commerce Department on Tuesday, tied the record set the previous month. The all-important deficit in manufactured goods was down slightly at $103.4 billion, but not enough from January’s record of $106 billion to avoid being the 2nd worst deficit in manufactured goods ever. Here’s the chart.

In a related piece of news, the March employment report included a tally of which sectors of the economy added workers since the start of the pandemic in February, 2020 and which sectors lost workers. Manufacturing was one of the big losers, shedding 128,000 workers. The biggest loser was leisure and hospitality, down 1.5 million workers. Surprisingly, the next biggest loser was health care, down by 298,000 workers. Manufacturing was the third biggest loser. That’s not a good sign. The trade deficit exploded during the course of the pandemic as government stimulus money fed a healthy appetite for goods. For the manufacturing sector of the U.S. economy to suffer like that is an indication that the long decline in U.S. manufacturing has actually been accelerating during the course of the pandemic, making it obvious that the Biden administration’s talk of a renewed emphasis on manufacturing is a bunch of BS.

The big winners during the pandemic? Professional and business services gained 723,000 jobs during the pandemic. Transportation and warehousing added 608,000 jobs. Retail added 278,000. Construction was flat.

It’s going to be fascinating to see what happens going forward as the federal government continues to run massive budget deficits (driven mostly by the need to offset the drag of the trade deficit) – forcing it to sell huge quantities of bonds – while, at the same time, the Federal Reserve will begin selling off its $6 trillion worth of bonds in an effort to drive up interest rates and slow inflation. It’s hard to see how this ends well. In my opinion, a recession – likely a bad one – is a sure bet.


U.S. Economy may be beyond repair.

March 29, 2022

On top of all of the other depressing developments in the world, this one was just too much for me, so I’ve been sitting on it all month. I’ve come to the conclusion that the only way to deal with it is to finally admit the obvious. America’s economy is broken beyond repair. There is no hope of fixing what’s wrong.

The January trade data, released earlier this month (February data will be released in early April), is the final straw. Here’s a chart of our total goods trade deficit. And here’s the deficit in manufactured goods alone. The records set in both categories in the previous month were bad enough, but they exploded further in January. It’s now abundantly clear that the U.S. has become totally dependent on foreign suppliers for our every need. They have a death grip on our economy.

I believe it’s reached the point where we can no longer fix this problem even if we wanted to which, sadly, no one seems to want to do, because no one cares. Even the basic things we’d need to even try would have to be imported. Even the tools we’d need to make the basic things would have to be imported.

Just this morning I came across this article about a senate bill to fund the rebuilding of the computer chip industry in the U.S.: https://www.foxbusiness.com/technology/us-senate-approves-52b-chips-bill-in-bid-to-reach-compromise. First of all, you need to understand that this is exactly the kind of thing that politicians do to create the illusion that they’re doing something to fix the problem. It’s exactly what the global corporate benefactors of the politicians pay them to do to avoid what they fear most – a turn away from free trade toward a return to tariffs that are so badly needed to provide real incentive to manufacture products domestically.

It’s nothing but extortion, in essence telling America that we won’t even make a show of fixing the problem we created unless you give us $52 billion. Even then, the problem would persist. Most of that $52 billion would be used to import the products needed to build the facilities. Beginning with the heavy equipment needed to develop the sites – the bulldozers, excavators, cranes, etc. – even many of those would be imported. (Caterpillar would get a small piece of the action.) Most of the steel would be imported. Virtually all of the machinery needed to build the chip-making process would be imported. And, once ready to run, virtually all of the raw materials would be imported. Throughout the building process, much of the labor involved would either be illegal or foreign workers here on work visas.

Then, guess what? Once this new chip manufacturing capacity is ready to start up, foreign-made chips will suddenly be in abundant supply again and the customers will shun the new, American-made chips in favor of the cheaper imports, the price of which will have been suddenly cut. The new plants will sit idle because there are no tariffs in place to protect them. The foreign chip-makers will come in, crate up the equipment, and ship it back to their overseas plants for pennies on the dollar. The global corporations will be $52 billion richer and American taxpayers will be stuck with the bill. We’ve seen this same scenario play out over and over.

Recently, President Biden warned the Chinese not to help Russia avoid the economic sanctions imposed when they invaded Ukraine, or there would be serious consequences. The Chinese must have been rolling in the aisles laughing after that meeting! Serious consequences? Oh, you mean like the ones for completely ignoring the Phase 1 trade deal? The tariffs that China agreed in writing would be fair consequences? The tariffs that not a penny’s worth has yet to be implemented? Don’t be ridiculous! China owns us lock, stock and barrel and they know it. They fear nothing that America says because America never follows through on anything.

America prevailed in World War II thanks to its industrial might. Its military at the beginning of the war was barely up to the task. However, thanks to its ability to convert its industrial capacity to war-time production, by the end of the war the Willow Run bomber plant in Michigan was cranking out a new B24 bomber every hour, while the shipyards on the west coast were building new destroyers at a rate of one every two days. Today, we have no such industrial capability. I doubt that we could sustain a military effort of any size for much more than a month before we ran out of imported supplies.

This morning, it was reported that Ukraine has asked to U.S. to continue to supply them with Javelin missiles at a rate of 1,000 per day. The reporter noted that our own military’s supply has been critically reduced by what we’ve provided to Ukraine already. Seriously, do you think the Pentagon has been paying the builder of the Javelins for spare capacity to make 1,000 per day when we probably haven’t even been using them in training exercises at a rate of ten per week? I doubt that we have the ability to produce even ten per day. They’d quickly run out of chips. GM just announced a 2-week closure of one of its most profitable pickup truck assembly plants for that very reason.

The federal budget deficit and the national debt are tied directly to the trade deficit, which is now contributing $1.25 trillion per year to each of them. (The federal government has to pour that much back into the economy to offset the drain of the trade deficit in order to avoid a deep recession or depression.) It’s a problem that they could ignore as long as interest rates were near zero, since that made the interest on the national debt close to zero too. But now interest rates are rising fast. Suddenly, the current level of federal spending is a major problem as the Federal Reserve finds itself far behind on inflation and is raising interest rates fast. Now, the economy is boxed in from all directions. We can’t spend our way out of the trade deficit to avoid an economic collapse. It’s right around the corner and coming fast.

I wrote Five Short Blasts and began this blog in 2007 in the hope that my warning of the effects of the relationship I had discovered between worsening overpopulation and unemployment could lend some urgency to the need to protect ourselves from badly overpopulated nations who were preying on our market, and the need to avoid their same fate.

Now, it’s too late. The foreign globalists have achieved their goal. America has been brought to its knees without firing a shot. What’s going to happen next is just a matter of time. It was foolish to think I could make a difference. My time and efforts have been wasted. Maybe something will happen yet to change my mind. At this point, it’s hard to see it. I may continue this blog, but the nature of it may change. The economic collision that I hoped my Five Short Blasts could avert has finally happened. Now, all that’s left is to say “I told you so” as the rest of the world begins to scavenge the wreckage.


Inflation / Supply Chain / Worker Shortage Crisis. What the hell is going on?

November 14, 2021

It’s been a while since I’ve posted anything. It’s because I’ve been analyzing the most recent economic data in the hope of being able to relate it in some way to my theory that worsening overpopulation, and trade with overpopulated nations, is driving unemployment and poverty higher – ultimately leading to mankind’s undoing.

I find myself at a loss, however. None of what’s going on in the economy today adds. Finally, I’ve come to the conclusion that it doesn’t make sense because something fishy is going on. So I’m just going to present the data and let you decide for yourself.

Trade Data:

Let’s begin with this chart of our trade deficit in manufactured goods. It had begun to show signs of leveling off until June of 2020 when it took off again, but has leveled off again for the past five months, setting a record in September. The trade deficit with China soared to its highest level since December 2018, as imports rose and as China continued to renege on its commitments to buy U.S. exports, confident that the Biden administration doesn’t have the backbone to enforce the “Phase 1” trade agreement. At any rate, it seems that companies who switched to their secondary suppliers in other countries when tariffs were imposed on China had no choice but to order more from China when those secondary suppliers were unable to keep up with demand. That’s not cheap and surely factored into rising prices.

The soaring trade deficit kind of makes sense. As the pandemic began to bite and as stimulus money fattened up wallets, consumers began to simultaneously hoard some items while soing on a shopping spree for others. Companies increased their orders for foreign goods by $20 billion per month until the supply chain was choked off by a shortage of shipping containers and a glut of cargo ships stalled at inbound ports. Now, here’s a chart of our overall trade deficit. As you can see, it was fairly stable at an average of about $50 billion per month but, sometime around June of 2020, it began to soar, reaching an all-time record of $80.9 billion in September, the most recent month for which trade data is available. That’s a jump of $30 billion per month. The increase in manufactured imports explains most of it. The rest is due to a huge jump in oil imports. In May of 2020, oil imports had fallen to a modern-era record low of $5.95 billion. In September, imports were back up to $18.9 billion and climbing.

Last week I saw a news report that said the number of ships anchored offshore from the port of Los Angeles had risen to over 100. It was also reported that warehouses across the entire U.S. are completely full. So full are the warehouses that truckloads and containers full of goods are being parked in empty lots and anywhere they can legally park.

At the same time, we see rolling product outages of everything on our store shelves, including domestically produced food items. There is talk of turkey shortages and cranberry shortages for Thanksgiving. One day you’ll see an empty shelf where some commonly used item once sat. Next week, that space is full but some other items are now gone. You never know what you’re going to be able to get.

It’s these shortages that are blamed for soaring prices. But how the hell do we have these shortages? The trade data and news reports about ports clogged with offloaded containers and warehouses stuffed to the rafters all paint a picture of a glut of products beyond anything that anyone could ever have imagined.

I’m telling you, something’s not right. I believe global corporations have learned a new trick, using the pandemic as cover to create an illusion of shortages to justify big price hikes, all in an effort to grab up as much government stimulus money as they can. Domestic producers and shipping companies are also capitalizing, and blaming it all on the pandemic – something that was a factor early on but hasn’t been – at least economically speaking – for a long time now.

Employment Data:

The most recent employment data is even more confusing. We see the “help wanted” signs posted on the door of virtually every establishment we walk into. We hear the news reports about shortages of workers in every industry, from manufacturing to fast food. Companies are boosting wages and offering various kinds of “signing bonuses,” yet still can’t attract workers. The worker shortage is constantly cited as the reason behind empty shelves and soaring prices.

But wait a minute. The Labor Department reported last week that unemployment fell to 4.6% in October. That’s a pretty low level of unemployment. In the past fourteen years, it was lower than that for only a three-year period from March of 2017 to March of 2020. And look at this chart of per capita employment, which is essentially the same thing as the “labor force participation rate” which is tracked by the labor department. It fell like a rock at the onset of the pandemic, but has almost completely recovered just as quickly. Today, it stands at the same level as it did in September of 2016. (It has never yet recovered to the level that existed before the global financial crisis of 2008.) In September of 2016, we were in the final months of the 2016 election, and the Democrats were touting the strength of the economic recovery from the financial crisis. Inflation was nearly non-existent. Shelves were fully stocked. Every establishment was fully staffed. Unemployment was 5.0%. So how is it that today, in spite of the fact that the labor climate is almost exactly the same now as it was then, and the fact that we have two million more workers employed today than we did then, shelves are empty, prices are soaring and everyone complains that it’s because of a worker shortage?

I believe part of it can be explained by the explosion in highway construction work and in residential and commercial construction. Perhaps there’s even some element of growth in manufacturing employment as companies grow more disgusted with the global supply chain. I’ve said for a long time that a return to domestic manufacturing would transform the economy, creating millions of high-paying jobs that would siphon workers away from low-paying jobs in industries like fast food. We may be witnessing exactly that kind of transition. If we are, don’t be surprised if vast swaths of the fast food industry and others that provide very little value to consumers disappear. Don’t be surprised if restaurant chains like McDonald’s and Wendy’s bite the dust. How long will customers wait in long lines at drive-through windows before they wake up to the fact that they could pack themselves a brown-bag lunch at a quarter of the price and in one tenth of the time, not to mention the gas wasted and carbon emitted while they sit there with their engines idling for fifteen minutes?

Even so, such a transition in the economy would shift at most maybe five million workers from those low-paying industries to high-paying manufacturing and construction jobs. That’s five million workers out of 160 million. It doesn’t explain how every industry is complaining of a worker shortage. Just take a look around and you can’t help but be suspicious of something fishy. Fast food restaurants with closed dining rooms have “help-wanted” signs at the entrance to their drive-through window. Yet, walk into the Culver’s or Chick-Fil-A right next door and you find them fully staffed.

A big part of the explanation of the supply chain crisis is that trucking companies can’t find enough drivers to move the goods. But then you take a trip in your car and find the truck volume on the interstate highways is worse than you’ve ever seen it.

I could go on, but you get the idea. None of this adds up. You can’t help but wonder: is this fast food restaurant really trying to hire any workers, or is that “help wanted” sign just there to create a phony narrative that justifies their higher prices and your long wait in the drive-through lane? Are these rolling outages on store shelves really due to product shortages, or they engineered to justify higher prices. Are all of these companies using that same narrative to raise prices not because they need to, but to suck up their share of pandemic stimulus money and social spending money that’s pouring into the economy by the trillions?

If you’re a domestic manufacturer of consumer staples, are you going to stand by while manufacturers of televisions, computers, cell phones and others rake in huge profits from people spending their stimulus money, or are you going to get in on the action by creating an illusion of shortages to justify higher prices and profits?

Where are the journalists who should be asking these tough questions? Where are the regulatory agencies who should be overseeing this crap? And why is the Federal Reserve sitting on its hands while inflation escalates out of control?

This whole supply chain/inflation/worker shortage crisis is a bunch of BS that doesn’t add up until you look at corporate profits and then realize that we’re all being taken for a ride.


“Embrace change,” corporate America!

September 3, 2019

I was there, working in manufacturing in the 1980s, when a cold wind swept across America.  I was there when our corporations, until then led by manufacturing and the engineers who rose up through its ranks, kicked manufacturing to the curb and replaced their leadership with marketing people, skilled in the art of B.S., and bean counters, focused on nothing but cutting costs.  I was there when the United Nations and the World Trade Organization embarked on their campaign of raising poor nations out of poverty through the systematic plundering of jobs from the U.S. – as many jobs as possible without tipping the balance of power in favor of bad actors who might threaten this new concept of “globalism” and the “New World Order” – the new regime of parasites dedicated to keeping its U.S. host alive just enough to keep the blood flowing.

I was there when they began scaling back manufacturing operations, laying off good workers and closing plants.  “Embrace change,” we were told constantly by business managers with an air of condescension, as though they were addressing fools too dumb to recognize good things and good opportunities when they see it.  We had made careers of embracing change – change for the better – changes that automated our factories, boosted production, cut emissions, improved quality and grew profits.  Now we were being insulted by con men whose only goal was the next promotion, which required laying off more people than the next guy.

I was there at a big division-wide meeting – one of those meetings whose purpose was ostensibly to gather input, but it was clear from the start that input was the last thing they wanted.  What they wanted was “buy in” for the new direction of the company.  In other words, you’d better accept what’s coming enthusiastically, with a big smile on your face, if you know what’s good for you.  The leader, the division manager, asked, “what are we going to need to succeed?”  I raised my hand and replied – perhaps naively or perhaps in a thinly-veiled attempt to stand up for what I and many others present had built our careers around.  “We’ll need excellence in manufacturing.”  I was stunned by his arrogant, dismissive reply.  “Why?  We don’t need that.  We can buy that!”  I thought to myself, “you dumbass, you can buy it if you want, but you still need it, and now you’re at the mercy of your supplier.”  But it would have been a pointless example of falling on your own sword to come right out and say it.  “Embrace change.”  Here it comes.

Our final days before closing the doors were spent writing operating procedures, documenting every detail of our operations, and then training workers brought over from foreign subsidiaries.  We were forced to facilitate the widespread technology transfer that played a critical role in ruining the American economy.

It’s decades later and the tables have turned.  As it always does, the pendulum swung too far.  The globalist corporations over-played their hand, planting the seeds of political change.  Americans are sick of working for minimum wages and being the world’s chumps.  America itself can no longer fund massive trade deficits.  The wind has shifted and now blows cold on globalist dreams of reaping big profits from a China transformed into western-style consumers and from plundering the American market with cheap products.  Those dreams never had a chance.  China will never be more than a sweat-shop labor pool with their gross over-population dooming any hope of a western-style, consumer-driven economy.

In the meantime, a lot of weeds sprouted in the devastated American economic landscape.  By “weeds,” I mean business models that bring so little value to the table that they are dependent on virtual slave labor wages.  Cheap junk of poor quality has perpetuated a throw-away mindset among consumers.  Cheap clothing made of thin, flimsy fabric.  Tools that break after one use.  Auto parts and appliances that break as soon as the warranty expires.  An economy dependent on consumers burning through their severance packages.  A retail economy that employed laid-off workers manning check-out lines until everyone had burned through their savings.  An economy totally dependent on consumers buying stuff that they had no hand in producing.  All the while the economy grew.  It didn’t matter if the growth was flowers or weeds, as long as the color was green – money pouring into corporate coffers.

In the wake of Trump’s tariffs on China, retailers are having a hissy-fit when their suppliers ask for a price increase to cover the cost of the tariffs.  Products with high perceived value needn’t fear.  They’ll always find a way to be marketed successfully even if their prices do rise a few percent.  Those with low value will bite the dust.  Good riddance.  And retailers who turn their backs on good products just because the supplier needs to raise prices to make a profit – whether to cover the cost of the tariffs or, better yet, to begin manufacturing domestically – will lose out to retailers who understand their value, and they too will fail and vanish.  Again, good riddance.  It’s not like there’s a shortage of retailers.

So, corporate America, the shoe’s now on the other foot.  EMBRACE CHANGE!  Think of the possibilities and opportunities – the opportunity to cut your shipping costs dramatically, to be in charge of your manufacturing again instead of being at the mercy of Chinese companies, to boost sales to American consumers with more buying power thanks to rising wages.  EMBRACE CHANGE!!  Maybe you can mitigate some of the increased cost by cutting fat at the top layers of your organizations – those con men who grew fat and rich by ruining the lives of the people who actually did the work.  EMBRACE CHANGE!!!  Maybe you’ll survive.  If not, good riddance and adios.  Don’t let the screen door hit you on the way out.  Your workers will be fine.  The winning companies will snap them right up.


Trump Tariff Policy and the Risk of Recession

August 21, 2019

Early this month, Trump announced that a 10% tariff would go into effect on September 1st on all remaining imports from China.  (Half of Chinese imports were already subject to a 25% tariff.)  Stock markets plunged amid warnings of a global slowdown, inflation and the possibility of recession in the U.S.  Investors rushed to buy safe-haven bonds, sending the yield on 10-year bonds below that of 2-year bonds, producing the dreaded “yield curve inversion,” which has often been a harbinger of a looming recession.  So the warnings of recession intensified.  Every weaker-than-expected economic report blames the “trade war” and Trump’s tariffs, while every stronger-than-expected economic report – most notably a strong labor market and good GDP growth (the exact opposite of recession) is shrugged off as happening in spite of the tariffs and trade war.  The globalist media is desperately stoking fear of a recession in the hope of creating a self-fulfilling prophecy.

Is there actually a risk of recession related to Trump’s tariff policy?  You bet there is.  But the relationship is exactly the opposite of what economists and the media would have you believe.  Trump’s “slow turkey” approach to the use of tariffs – imposing them only on China – so far hasn’t yielded anything in terms of reducing the trade deficit and bringing manufacturing jobs back to the U.S.  Don’t get me wrong.  The tariffs on China are definitely working – reducing the trade imbalance with China by nearly 25% this year.  But companies aren’t convinced that this is anything other than a blip in U.S. trade policy or that it could extend beyond China.  So, instead of bringing jobs back to the U.S., it has shifted them to other overpopulated nations hungry for work.  It appears that countries like Mexico and Vietnam have been the big beneficiaries so far, where our trade deficit with each has grown by approximately 25%.

Our overall trade deficit hasn’t budged.  In  June (the most recent month for which data is available), our deficit in manufactured goods was $73.1 billion – the 2nd worst figure ever recorded and only $3.6 billion below the record set in December of ’18.

Trump appears to be walking a fine line, taking the “slow turkey” approach to tariffs to avoid roiling markets but, at the same time, not realizing any of the benefit of bringing back manufacturing jobs, leaving the economy dependent on deficit spending to counteract the drag of the trade deficit, making it susceptible to a recession.  It’s a huge gamble.  A recession will doom any hope of a 2nd term and, with it, any hope of sustaining this badly-needed turn in trade policy.

 


How did unemployment fall in February?

March 13, 2019

On Friday, the Labor Department reported that the economy added only 20,000 jobs in February.  In spite of that number being significantly lower than what’s needed to keep pace with growth in the labor force, unemployment fell – not by just 0.1%, but by 0.2% – to 3.8%.  How can that happen?

It happened in large part because of some really good news – a piece of data that isn’t even a part of the unemployment report.  The official explanation is that the labor force actually shrank a little in February, while the employment level, as measured by the household survey portion of the report, actually grew by 253,000 workers.

But you have to look beyond the employment report to find the really good news that made this happen.  The employment report depends a great deal on the population estimate determined by the Census Bureau.  And in December, the Census Bureau adjusted it’s estimate downward by nearly 1.2 million people – an unusually large adjustment.  Why?  A combination of factors that include the birth rate, death rate and, probably most importantly, the growth in the immigrant population, whether through legal or illegal immigration.  It’s evidence that Trump’s crackdown on both categories of immigration is beginning to have an effect.

As a result, per capita employment has now grown for six consecutive months – something that has happened only  three times in at least the past twelve years.  (The longest such streak was July, 2011 through March, 2012 which occurred as the U.S. emerged from the “Great Recession” of 2008.)  Here’s a chart of per capita employment since November, 2007:  Per Capita Employment.

In addition, the Labor Department reported that hourly wages rose by an annual rate of 3.4%, the fastest pace of increase in quite a long time.

The point of all of this is that, in spite of the rate of growth in the U.S. population slowing and contrary to assertions by economists that population growth is vital to economic growth, there’s been absolutely no negative impact on workers or on the economy.  Per capita employment is rising, along with wages.  It’s evidence that the scheme of using high rates of immigration to suppress wages is beginning to unravel.


Debt Denial

February 18, 2019

https://www.cnbc.com/2019/02/13/that-22-trillion-national-debt-number-is-huge-but-heres-what-it-really-means.html?recirc=taboolainternal

A few days ago, the national debt hit $22 trillion for the first time, and the above-linked article appeared on CNBC, essentially downplaying the seriousness of the situation.

  • What matters is the debt-to-GDP level, which is not in the danger zone now but threatens to get there before long.

Baloney.  When the people holding that debt – China, Japan, Germany and all the others who use our trade deficit money to buy U.S. debt decide to cash out and demand their money back, are they going to say “Hey, U.S. GDP, we want our money?”  Of course not.  U.S. GDP is an economic measure, not a holder of money.  They’re going to come to you.

Take another look at the picture in the article of the man looking up at the national debt clock.  Not mentioned in the article are the words just below the national debt figure:  “YOUR family share 086858.”  That’s right, the average American family now owes $86, 858.  Measured in terms of debt-to-average household net worth, the national debt has skyrocketed far beyond the average household’s net worth and ability to pay.  The reason that expressing the national debt as a percentage of GDP is so bogus is that, although the GDP has been growing steadily, the average net worth of American households has been stuck at about the same level for decades.

The source of all this debt?  The article provides a half-truth:

The main culprit of public debt is budget deficits, …

Well, yeah, but that’s like saying you owe money on your mortgage because you borrowed it.  The real question is “why do we have to keep running such huge budget deficits?  Why don’t we just stop doing that?”  Think about it.  What would happen to the economy if the federal government suddenly stopped putting a trillion dollars per year into it?  Instant recession – probably one that would quickly spiral into a depression.  Without the federal government putting that money into the economy – and it’s no coincidence that it’s almost exactly the same as the amount that the trade deficit takes out – the economy would collapse.  There are those who would tell you that balancing the budget, without addressing the trade deficit, would somehow prove to be an economic stimulus.  Don’t listen to them; they’re idiots.  The only way to deal with the budget deficit and the national debt is to eliminate the trade deficit.  Period.  Plain and simple.  There are no other options.  Let the trade deficit continue to grow and we’re soon headed for a real disaster.

It’s astonishing to me and scary how few people in the media, and even economists, understand this basic truth.


Economy’s Good, Not Great. Tariffs Not Yet a Factor.

October 20, 2018

I’m back from my annual fall fishing trip up north.  Much has happened and it’s time to get caught up.

The economy’s doing quite well.  In September, the unemployment rate fell yet again to 3.7%.  Economists are wringing their hands over the tight labor market.  Every month, the Federal Reserve proclaims the economy to be at “full employment,” a condition likely to yield rising labor costs, fueling unwelcome inflation.  Yet, every month the economy adds more jobs and somehow manages to find workers to fill them.  Now we’re really at full employment, says the Fed.  Another month.  More jobs added.  “Now we’re really, really at full employment.”  And on it goes.  This supposedly tight labor market is the Fed’s chief justification for raising interest rates.

It’s almost as though there’s a conspiracy to stir up hysteria about an over-heating economy.  On Tuesday, the Fed released its “JOLTS” report of the number of job openings, noting that the number of job listings exceeded the number of people reported to be actively seeking employment.  What they don’t tell you is that that’s perfectly normal.  “Job seekers” is a figure taken from the unemployment report.  But if you’re simply changing jobs and never filed for unemployment, you’re not counted.  Many job opening listings are simply positions opened up by people who have left for other jobs, often because they have decided to simply relocate from one place to another.  It’s a weak measure of the health of the economy.  Nevertheless, ECONODAY had this to say about the report:  “Jerome Powell (head of the Federal Reserve) concedes that it’s a mystery why wages haven’t been going up very much as demand for labor grows and the supply of labor declines. Yet sooner or later, the law of supply and demand is bound to assert itself, at least this is the risk that the Fed is guarding against in its rate-hike regime.”

Yesterday, commenting about the weak report of existing home sales, ECONODAY had this to say: “The lack of wage gains, however, is a negative for home buyers not to mention a great mystery of the 2018 economy given the increasing scarcity of available labor. And another great mystery of this year’s economy is the lack of interest in home ownership.”

Is it a lack of interest in home ownership, or a lack of the wherewithal to buy a home in the face of rising interest rates (driven by the Fed) combined with the “great mystery” of a “lack of wage gains?”  People don’t just lose interest in owning a home.  Everybody wants a place they can call their own.  The problem is that not everyone can afford it.

There’s really no mystery here.  Anyone who has followed this blog or has cast a cynical eye on the employment statistics ever since the “Great Recession” knows that the unemployment rate is completely bogus, driven down artificially by the Labor Department claiming that people have dropped out of the labor force.  During the Obama administration, 6.4 million workers mysteriously vanished.  Since Trump took office, that figure has shrunk by over a million workers, but an honest tally of the unemployed still stands at 11 million workers (including those who were unemployed before the “Great Recession”) and unemployment is actually at 6.6% instead of 3.7% – a rate nowhere near low enough to begin driving wages higher.  Per capita employment remains exactly 1% below the level it was at before the onset of the “Great Recession” – a figure that was already depressed.

So the economy is doing well – better than it has done in the past ten years – but that’s not saying a lot.  The tax cut that went into effect this year gets the credit, but that will only carry the economy so far.  To keep it going – to accelerate the economy even further – we need progress toward cutting the trade deficit, especially the deficit in manufactured goods.  The Trump administration has made a lot of moves in that direction, imposing 10% tariffs on steel and aluminum, tariffs on $25 billion of Chinese imports, followed by 25% tariffs on an additional $225 billion of their imports, the renegotiation of the North American Free Trade Agreement (NAFTA) and threats to impose tariffs on all auto imports.

But there’s no evidence of any improvement in our trade situation, at least not yet.  The most recent trade data show that the rapid erosion of American manufacturing continues, yielding a trade deficit of $70 billion in manufactured goods in August – a new record – with new record trade deficits with China and Mexico.

That’s not an indication that Trump’s tariffs are a failure.  Aside from the small tariffs on aluminum and steel, none of the above-mentioned initiatives have taken effect yet.  The biggest chunk of the tariffs on China went into effect in September, so the effect on trade with China won’t show up until new trade data is released next month.  The “USMCA” agreement – the replacement for NAFTA – hasn’t been enacted yet.  And the trade deficit with China was artificially swollen by a rush to beat the tariffs.

It’s going to take a lot of patience to realize the real benefits of Trump’s trade policy.  The purpose of tariffs is to provide an incentive to manufacture products domestically.  The immediate effect will be to raise prices for American consumers, just as economists have warned.  Longer term,  companies will begin to realize that they can improve profits by manufacturing in the U.S., thus avoiding the tariffs.  It’s going to take time for that realization to sink in, and time for companies to implement plans to build factory capacity in the U.S.  Ultimately, when that capacity comes on line, we’ll see a real boom in the demand for labor and a corresponding rise in wages, more than offsetting any increase in prices.

Hopefully, the Federal Reserve won’t torpedo the economy in the meantime.  It can’t have any impact on price increases driven by tariffs, so it would be pointless to even try.  All they can do is drive the economy into recession with their high interest rates, raising doubts about the president’s economic policies, and increasing the chances that America will shrink back into its role as host in the global host-parasite trade relationship.  That would be a disaster.

Again, it’s going to take time and patience.  It took seven decades of globalism (beginning with the signing of the Global Agreement on Tariffs and Trade – GATT – in 1947) to get us into the fix we’re in.  It’s going to take more than a year or two to get us out.


The Federal Reserve Thinks Unemployment Is Too Low!

September 13, 2018

https://www.reuters.com/article/us-usa-fed-rosengren/fed-says-it-whipped-u-s-unemployment-maybe-too-well-idUSKCN1LT0F0

As reported in the above-linked Reuters article, Boston Fed bank president Eric Rosengren worries that the Federal Reserve has been “too successful” is lowering unemployment.  He explains:

“The recurrent pattern (of recessions) was one where the tightening of monetary policy was expected to slow the economy down gently…to full employment,” Rosengren and three Boston Fed co-authors noted. But “Once the unemployment rate starts to rise by a relatively modest amount, dynamics take hold that tend to push the economy into a recession.”

The Fed considers an unemployment rate of 4.5% to represent “full employment.”  The current rate of unemployment, as reported by the Labor Department on Friday, is 3.9%.  So the Fed worries that there’s no place for the unemployment rate to go but up, and even a small rise could start a recessionary downward spiral in the economy.

This is ridiculous for two reasons:

  1.  The Fed ignores its own role in choking off the economy and precipitating recessions by constantly tightening monetary policy (i.e., raising interest rates) as unemployment drops, and
  2.   The Fed has bought into bogus employment figures propagated by the Labor Department in an effort to stabilize confidence in economic policy in the wake of the Great Recession.

Regarding point 2 above, consider the following:

  • In November of 2007, just before the collapse of Lehman Bros. triggered the Great Recession, 48.4% of the U.S. population was employed and the unemployment rate stood at 4.7%.
  • As of August of 2018, the U.S. population has grown by 25.6 million people.  But, according to the Labor Department, the work force has grown by only 7.9 million workers, and the nation’s employment level has grown by only 8.9 million workers.  And in August of this year, only 47.4% of the population was employed.  Yet, thanks to the unnaturally low rate of growth in the labor force reported by the Labor Department, instead of rising, official unemployment has fallen to 3.9%
  • An honest accounting of the labor force that grows proportionately with population growth would produce a current  unemployment rate of 6.8% – nowhere close to “full employment.”
  • In spite of the decline in unemployment, wages have barely risen, confounding economic experts.  They haven’t risen because unemployment is still quite high – not anywhere close to being low enough to put upward pressure on wages.

Even the definition of “full employment” used by the Fed – 4.5% – is subject to debate.  If that level is “full employment,” how do you explain that some states and some countries routinely operate well below that level?  During World War II, unemployment fell to approximately 1% in the U.S.

The Federal Reserve is making a big mistake with its program of hiking interest rates just because the economy is doing better.  President Trump has been right to criticize its policies.  How can he “Make America Great Again” when the Fed’s policy is to “Let America Get Just a Little Bit Better – But Not Much?”