Three major economic reports were released in the past week, each of which I usually write about separately. But there was nothing particularly noteworthy about any of them. Taken together, however, they paint a picture of a U.S. economy that’s still stuck in the “new normal” that characterizes globalization (trading freely with all nations, regardless of whether it makes any sense) – stagnation, an imbalance in the supply vs. demand for labor that puts downward pressure on wages, and a host-parasite relationship between the U.S. and the overpopulated nations of the world.
First quarter GDP was announced last Friday, and it came in at a measly 0.7%. Expressed in per capita terms, it rose only 0.09%. Over the past ten years, per capita GDP has risen at an annual rate of only 0.6%. That’s very close to no growth at all and explains a lot about Americans’ sense that the country is headed in the wrong direction. Population growth and free trade with much more densely populated nations has become a significant drag on the economy.
Speaking of trade, that data was released Thursday. Here’s a chart showing the monthly balance of trade in manufactured goods: Manf’d Goods Balance of Trade. The deficit in manufactured goods continues to hover near its record worst level. In fact, it was the second worst quarterly figure ever, down by only $1 billion from the record level of $177.1 billion set in the previous quarter.
The April employment report was released yesterday. The headline numbers were that the economy added 211,000 jobs and unemployment fell to 4.4%. No one noted that the employment level rose by a more modest 156,000 and unemployment fell because, once again, the growth in the labor force was understated at only 12,000 (while the U.S. population grew by 171,000). Each month, as the unemployment rate ticks downward, economists proclaim the economy to be at “full employment.” And each succeeding month, the economy adds more jobs and the unemployment rate drops more. How can that be? Here’s a chart of the “labor force backlog,” the cumulative amount that the government has under-reported growth in the labor force in order to make unemployment look better than it really is: Labor Backlog. (It’s the yellow line on the chart.) Note that the “backlog” remains near its highest level at about 5-1/2 million workers. Were it not for this “backlog,” an honest reading on unemployment would have the figure at 7.2% – a far cry from “full employment.” It’s no wonder that, in spite of all of this supposed strength in labor market, there’s been no corresponding upward pressure on wages.
What does it mean when you put all of this together? It means that the approach taken by President Trump to date – jawboning foreign leaders on trade and CEOs about manufacturing in the U.S., and making idle threats about tearing up trade deals and implementing “border taxes” – has done absolutely nothing to improve the economy. No surprise. These are exactly the same results that the same tactics employed by past presidents for decades has produced, which are no results at all.
Trump has seemed to be backing away from his promises on trade. He’d better not, or he’ll find himself dealing with a recession before his first term is up. His voters tolerate his less appealing aspects on the hope that he’ll follow through on his promise to “Make America Great Again” by fixing our trade mess. Failure to do so won’t be tolerated.