June 2, 2017
The Department of Commerce released the April figures for international trade in goods and services this morning, and the trade deficit rose again to its worst reading since January – $47.6 billion. Imports were up and exports were down. But you can’t even find the worst news in the report – the deficit in manufactured goods. The Commerce Department doesn’t even bother to calculate it. But I do. By subtracting from the overall deficit the figures for services, foods, feeds, beverages and petroleum products, you can arrive at a pretty good estimation of trade in manufactured goods. The news is bad. The deficit in manufactured products rose to $63.4 billion, beating the previous record set in March, 2015 by $0.1 billion. Imports rose to a record level and exports fell to their lowest level in five months. Here’s a chart: Manf’d Goods Balance of Trade. As you can see, the deficit in manufactured goods continues to worsen at the same pace that it has since 2010, more than doubling in seven years.
Separately this morning, the Bureau of Labor Statistics released a weak employment report for the month of May. Unemployment dropped, but thanks only to the old “mysteriously vanishing labor force” trick used so often during the Obama administration. The employment level actually fell by 133,000 workers. An accurate reading of unemployment would have had it actually worsening by two tenths of a percent. Manufacturing employment fell yet again by another 1,000 jobs. No surprise, in light of what’s happening with the trade deficit. Add this data to the extremely weak first quarter GDP and you have a picture of an economy that’s stalled and might be on the brink of something worse.
So President Trump now owns the worst performance in manufactured goods of any president. He vowed to “Make America Great Again.” The first step in that process is to stop it from getting worse. That hasn’t happened yet. Talk and optimism will only carry you so far. There’s been little action. There’s no border tax. NAFTA still stands. Jobs are still heading to China and Mexico.
To be fair, it’s still early in his administration, and the Republican congress has done nothing either. But I fear that the opportunity to “make America great again” is being frittered away.
April 20, 2017
I’ve been predisposed for a week or so and it’s now time to get caught up on some things. There’s been a lot in the news lately regarding Trump administration policies on immigration and trade. I’m extremely pleased with what’s happening on immigration, less so with what I hear about Trump waffling on the idea of a “border tax” (another name for tariffs).
But I’ll start with the above-linked story that came out last week because this is a perfect example of the divergence of interests that takes place when a nation becomes “economically over-populated” or takes on the characteristics of such an economy through free trade with a badly overpopulated nation. For the benefit of those unfamiliar with this concept, this divergence of interests is one of the consequences of the inverse relationship between population density and per capita consumption. As a society becomes more densely populated, the need to crowd together and economize space begins to erode per capita consumption. As per capita consumption declines, so too does per capita employment. The result is rising unemployment and poverty. It’s in individuals’ best interest – in the best interest of the common good – that this situation be avoided. (To better understand this concept, I encourage you to read Five ShortBlasts.)
However, while per capita consumption may begin to decline as a population density reaches a certain level, total consumption continues to rise with a growing population. Who benefits from that? Anyone in the business of selling products. Not only do they benefit from the increase in sales volume, but they benefit further as the labor force grows faster than demand, putting downward pressure on wages. Thus, it’s in corporations’ best interest to see population growth continue forever, and to pursue more markets through free trade.
So it’s in the best interest of the common good that we avoid meshing our economy through free trade with nations whose markets are emaciated by overcrowding and who come to the trading table with nothing but bloated labor forces hungry for work. But it’s in corporations’ best interests to grow the overall customer base through free trade with those same nations. So it comes as no surprise that a big-business coalition is eager to steer lawmakers away from any tax plan that would include a “border tax” (a tariff) that might shut them out of their foreign markets.
They call themselves “Americans for Affordable Products,” making it sound as though it is individual Americans who make up this coalition and not global corporations. They want us to believe that products will become less affordable. While prices for imports may rise, they want you to forget that those increases would be more than offset by rising incomes and falling tax rates. They don’t care if the border tax benefits you. All they care about is that it may not necessarily benefit them.
So which of these competing interests will lawmakers heed – their wealthy corporate benefactors or the angry Americans who swept the Trump administration into power on his promise to enact a border tax and bring our manufacturing jobs back home? Money talks and I fear that groups like this coalition are having an effect. Trump and Republicans would be wise to ignore them. Democrats paid the price for ignoring the plight of middle-class Americans when Obama betrayed his promise of “hope and change.” Those same middle-class Americans will pull the trigger on Trump too if he doesn’t come through.
April 8, 2017
The Bureau of Labor Statistics yesterday released its employment report for the month of March. The headline jobs number was weak. “Only” 98,000 jobs were added in March – about half of what was expected. But unemployment dropped by two tenths (a fairly big drop) to 4.5%. The data underlying the unemployment figure was quite strong. The “employment level” (the number of people reporting being employed in the household survey portion of the report) rose by 472,000 in March. (It rose by 447,000 in February.) And the labor force grew by 145,000 – outpacing the growth in the general population for the fourth month in a row.
Last month, Trump hailed the strong February employment report as “real,” as opposed to the “fake” reports produced by the Obama administration. (The Obama administration did lean heavily on claims of a shrinking labor force to prop up its unemployment figures.) Was that claim just bluster or has the reporting methodology actually changed for the better? It’s two early to tell but, at least for the second month in a row, the BLS claims that the labor force grew (as it actually does, of course) and the numbers seem plausible. Time will tell.
Per capita employment (the employment level divided by the population) climbed above 47% for the first time since November, 2008. (Here’s the chart: Per Capita Employment.) The “detachment from reality index” – my measure of how much the unemployment figures were distorted by the “mysteriously vanishing labor force” tactic used by the Obama administration – fell to its lowest level since January, 2013. (Here’s the chart: Detachment from Reality Index.)
This is great news, but it has more to do with a burst of confidence among consumers (likely driven by a burst of confidence among investors which has driven the stock market higher) in the wake of Trump’s election. The fundamentals of the economy haven’t changed. The trade deficit is as bad as ever. And interest rates are on the rise which will pull the economy down if Trump isn’t able to make headway with tax and trade reforms. And the jump in stocks that have propelled the economy has already stalled, now waiting to see if expectations of Trump policies actually materialize.
I hope that what appears to be honesty with the factors that make up the employment report (based on a scant two months’ of data) continues. But without the “border tax” that Trump promised, the good numbers won’t.
By the way, for some time now, the Federal Reserve and others have been proclaiming the economy to be at full employment. If that were true, then how does the economy continue to add jobs at a faster rate than the growth in the labor force, and how does the unemployment rate continue to fall? It’s because they were all sucked in by the “detached from reality” employment reports produced by the Obama administration. The fact is that an honest reading of unemployment (one that grew the labor force in proportion to population growth) has unemployment at 7.3% – nowhere even remotely close to “full employment.”
April 4, 2017
OK, I know it’s not reasonable to expect anything different. After all, Trump hasn’t yet had a chance to implement new trade policies that would have any meaningful impact on our trade results. What he has done is meet with some leaders of nations who are among the worst offenders in terms of their trade surplus with the U.S.: Mexico, Japan and Germany, most notably. He meets with Chinese president Xi Jinping in a couple of days. Reportedly, he hasn’t pulled any punches so far in expressing his displeasure with the trade deficit and has vowed to take tough action (like a “border tax”) to change the situation. So, one thing we can say about the early evidence provided by the February trade results is that tough talk has absolutely no effect on trade results. (As if the trade results of past administrations aren’t sufficient evidence.)
In February, the deficit dipped slightly. Here’s a chart of the deficit in manufactured goods: Manf’d Goods Balance of Trade. As you can see, though the deficit dipped slightly from January, it remains stuck in the $55-62 billion range it’s been in for two years.
As time goes on, I grow more nervous that Trump will cop out on the trade issue just as Obama did, as more and more meetings with world leaders and business leaders try to convince him of the intangible, unquantifiable benefits of free trade. It worked on Obama. Hopefully, they’ll find Trump a tougher nut to crack. Time will tell. If there is no border tax in Trump’s tax overhaul plan, we’ll know that he caved to the pressure. We’re watching, President Trump. You can kiss your supporters goodbye if you don’t come through on this campaign promise.