Trade Deficit Soars in January

March 8, 2018

https://www.bea.gov/newsreleases/international/trade/2018/pdf/trad0118.pdf

The above-linked report, released by the Bureau of Economic Analysis (BEA) this morning, reports that the trade deficit soared in January to $56.6 billion, the worst reading since October 2008.  Here’s a chart of the data, dating back to January of 2010 when President Obama boasted that the U.S. would double its exports within five years:  Balance of Trade.

Exports of manufactured goods fell in January and remain at the same level as March of 2012.  During that time, imports of manufactured goods have risen by $36 billion.  The goods deficit rose to $76.4 billion in January, an annual rate of $917 billion.  The deficit in manufactured goods alone was $68.3 billion, and is rapidly getting worse.  Check this chart:  Manf’d Goods Balance of Trade.  Since Trump took office, the trade deficit has jumped by 16%.

The trade deficit is killing economic growth.  It cut 4th quarter GDP (gross domestic product) growth by 31%.  Without the effects of trade, 4th quarter GDP would have come in at 3.63% instead of the actual figure of 2.5%.  GDP hasn’t grown by 3% since 2005.

This isn’t what Trump promised us.  While tariffs on steel and aluminum would be a good start, what’s needed badly are tariffs that cover the entire spectrum of manufactured products until a balance of trade is restored.  Perhaps with the departure of globalist Gary Cohn from Trump’s economic team, some real progress on trade may finally be possible.

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Per Capita GDP Contracts in 1st Quarter

April 29, 2016

Recessions are determined by two consecutive quarters of contraction in the nation’s Gross Domestic Product, or “GDP.”  But what if the GDP grows, but more slowly than the growth in the population?  In that case, your share of the economy has shrunk, as it has for every American, and it’ll feel like a real recession to you.  So that’s how recessions should really be defined – in terms of per capita GDP.

By that measure, the next recession may very well already be underway.  Though GDP grew in the first quarter, though by a paltry 0.5% (as announced yesterday by the Bureau of Economic Analysis), per capita GDP actually contracted by 0.2%, thanks to the population growing at an annual rate of 0.8% in the same time period.

This is the 2nd time in four quarters that per capita GDP declined.  It happened in the same 1st quarter time period last year, falling by 0.2%.  The difference is that last year the economy was already beginning to rebound by the end of the first quarter as we emerged from an extremely harsh winter.  This year, the economy stalled in spite of relatively mild weather and, with the first month of the 2nd quarter already behind us, the economic slowdown appears to be intensifying.

This stagnating of the economy isn’t just a one or two-year phenomenon.  It’s been developing for a long time now.  During the 8-year period beginning with the 1st quarter of 2008 (just before the onset of the “Great Recession”), per capita GDP grew at an annual rate of only 0.5%.  (Check this chart:  Real Per Capita GDP.)  During the 8-year period prior to that (2000-2008), it grew at an annual rate of 1.4%.  And during the 8-year period prior to that (1992-2000), it grew at an annual rate of 3%.  Though the economy continues to grow, albeit ever more slowly, in terms of GDP, per capita GDP has essentially ground to a halt.

This is exactly what the inverse relationship between population density and per capita consumption would predict – that eventually over-crowding would erode per capita consumption to a point where per capita GDP would actually begin to contract.  That’s exactly what we see happening now.  Though we continue to lean as heavily as ever on population growth to stoke the economy, that strategy has begun to backfire. We are all becoming worse off as a result.  It’s time for economists to wake up to the fact that this blatantly-flawed economic strategy is doomed to failure – that population growth has become a drag on the economy.


Per Capita GDP in Decline

July 3, 2014

The country is in an uproar over the immigration crisis that Obama’s refusal to enforce the laws has left us in and, at the same time, I find myself with limited time for writing posts.  You can read opinion pieces on the immigration mess anywhere and everywhere right now.  So I though a better use of my time would be to focus on the recent downward revision in GDP (gross domestic product) and use it as an example as to why America’s ridiculously high rate of legal immigration – not to mention Obama’s refusal to enforce the border and deport illegal immigrants – is so bad for the American economy.

The BEA (bureau of economic analysis) last week dramatically lowered its final reading of GDP for the 1st quarter to an annual rate of decline of 2.9%.  The harsh winter took much of the blame.  Adjusted for inflation, GDP still remains higher than it was in the 3rd quarter of 2013.  And it’s risen by nearly a trillion dollars since the 4th quarter of 2007, when the recession first began.

But you shouldn’t care about overall GDP.  What matters is each American’s slice of the pie, or per capita GDP.  When population growth is taken into account, per capita GDP fell to its lowest level since the 2nd quarter of 2013.  And it’s barely budged in the past seven years (going back to the 4th quarter of 2007 again).  Here’s the chart:  Real Per Capita GDP.

Since the end of 2007, per capita GDP has risen by only $317 per person, an annual rate of increase of only 0.09%.  That includes all Americans, and it’s been widely reported that all of the gains are concentrated in the top 1% of Americans.  Take away that top 1%, and per capita GDP has actually declined during the supposed “recovery” that has taken place since the end of the recession.  And that’s in spite of a trillion dollars in stimulus spending by the federal government and four trillion dollars of stimulus provided by the Federal Reserve.  Imagine how bad it’d be if we took away that $5 trillion that has been poured into the economy in the past seven years.

Declining per capita GDP is one of the outcomes predicted by the inverse relationship between population density and per capita consumption (which is inextricably linked to per capita employment).  As our population continues to grow beyond its optimal level (thanks entirely to both legal and illegal immigration), it’s inescapable that per capita GDP will decline, even as overall GDP continues to grow slowly.

In other words, immigration is the driving force behind a decline in Americans’ quality of life.  Yet, the deep pockets that fund our politicians continue to advocate for increased immigration and population growth.  They want more consumers to grow their bottom lines.


U.S. Trade with The E.U.

May 13, 2013

In his State of the Union address in February, President Obama called for a new free trade deal between the U.S. and the European Union, or EU.  (See this article for more information:  http://www.nytimes.com/2012/11/26/business/global/trade-deal-between-us-europe-may-pick-up-steam.html?pagewanted=all&_r=0.)

It’d be a huge deal, no doubt.  But would it be a good deal for the U.S.?  Since the signing of the Global Agreement on Tariffs and Trade in 1947 and since the inception in 1995 of its offspring, the World Trade Organization, the U.S. has been steadily moving toward freer trade with the rest of the world, including the 27 member states of the Euroean Union.  It only makes sense to examine the results of free trade with the EU thus far before deciding whether or not a further move toward freer trade would be a good deal for the U.S.

But first, a few facts about the EU are in order.  The European Union was established in 1993 and includes 27 members:  Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.  In other words, most of Europe, with a couple of noteworthy exceptions:  Norway and Switzerland. 

If the EU were a nation, it would be the 7th largest in the world in terms of suface area with over 1.6 million square miles and would be the 3rd most populous, with just over a half billion people, exceeded only by China and India. 

So how have we fared in trade with the EU, particularly in the all-important, job-creating category of manufactured goods?  Here’s a chart of our balance of trade with the EU since 2001:  EU.  As you can see, the U.S. suffers a large trade deficit with the EU.  Though it began to shrink beginning in 2006 – a process helped along no doubt by the overall decline in global trade that accompanied the onset of the “Great Recession” in late 2007, it began to deteriorate rapidly again in 2010.  In only three years since 2009, our trade deficit with the EU in manufactured goods has more than doubled. 

Now, let’s consider the factors involved:

Population Density:

With 503 million people, the population density of the EU, at 309 people per square mile, is only slightly less than that of China (359 per square mile).  It is approximately 3.6 times as densely populated as the U.S. (85 per square mile).  In per capita terms, our trade deficit with the EU in manufactured goods is $223, remarkably similar to our per capita trade deficit with China ($210).  Once again, we see that population density is a consistent predictor of whether we will have a surplus or deficit with any particular country and what the size of that imbalance might be expected to be. 

Currency Exchange Rate:

Economists are fond of blaming trade deficits on exchange rates that are kept artificially low by “currency manipulation,” accomplished by tactics such as currency printing by central banks.  The theory is that a currency that is kept artificially low makes that nation’s exports cheaper for American consumers while making American exports more expensive for that nation’s consumers. 

In 2012, the Euro weakened against the U.S. dollar by 14.3%.  And, in fact, as economists would predict, our trade imbalance with the EU worsened by 14%.  But that’s just one year in which the Euro took an uncharacteristic dip.  Since 2001, the Euro has risen by 31% against the dollar.  But, instead of improving, our trade imbalance with the EU worsened by 104%. 

Wealth:

Economists also blame trade deficits on low wages in other nations.  We have no data on average or median wages, but what’s known as purchasing power parity (“PPP”) – roughly a nation’s GDP (gross domestic product) per capita – is pretty analogous.  By that measure, the EU has a PPP of $34,500 and, if it were a nation, would rank in the top 20% of the world’s 229 nations.  The EU is not poor and wages are not low.  Since 2001, of the 26 EU member nations, 14 have experienced a PPP that has grown faster than the U.S.; that is, they have grown wealthier vs. the U.S.  In spite of that, our trade imbalance has actually worsened with 10 of these 14 nations. 

That leaves twelve EU nations whose wealth deterioriated vs. the U.S.  since 2001.  Of these 12 nations, our trade imbalance worsened with 9 of them. 

So, of these 26 member nations, our trade imbalance responded as economists would predict (based on the “low wage” theory) in 13 cases – exactly half.  In other words, there’s no relationship between low wages (or wealth) and trade imbalance whatsoever.   Falling wealth and wages are no more likely to worsen our trade imbalance than they are to improve it. 

Exports to the EU:

Well, OK, maybe our trade imbalance with the EU has worsened because we’ve imported more from the EU.  Maybe a new trade deal can make that up by boosting our exports to them, right?  Not likely.  In the past year, exports of manufactured goods to the EU actually declined by 1%.  This is in spite of President Obama’s goal of doubling exports within five years.  If the EU had any capacity for absorbing more American exports, shouldn’t we have seen some evidence of that in 2012 in light of the president’s push? 

Given the results of steadily liberalizing trade with the EU – results that were quite predictable given the relationship between population density and trade imbalances – further liberalization of trade with the EU makes absolutely no sense whatsoever.  It makes no more sense than liberalizing trade with China.  The result if the same.  It only makes sense to those vested in 19th century trade policy, economists too afraid of pondering the ramifications of population growth out of fear of being exposed as frauds.


Real Per Capita GDP Declines at 0.9% Annual Rate in 4th Quarter

January 30, 2013

The Bureau of Economic Analysis released its preliminary estimate of 4th quarter GDP this morning.  Since third quarter GDP had grown at an annual rate of 3.1%, economists were expecting it to have grown further in the 4th quarter, but at a slower rate – about 1.0%.  So the financial community was shocked to learn that 4th quarter GDP actually fell at an annual rate of 0.1%, well below the low end of the range of expectations. 

Of course, thanks to population growth, this means that real per capita GDP – your slice of the pie – fell even further, at an annual rate of decline of 0.9%.  (The population grew at an annual rate of 0.8% in the 4th quarter.) 

When the big jump in 3rd quarter GDP was released in the fall, just prior to the election, I accused the Obama administration of deliberately manipulating the timing of government expenditures to trump up the data and support the president’s claim that the economic recovery was gaining steam and that we needed to stay the course.   The breakdown of 4th quarter GDP provided in the BEA news release corroborates that claim:

Real federal government consumption expenditures and gross investment decreased 15.0 percent in the fourth quarter, in contrast to an increase of 9.5 percent in the third.  National defense decreased 22.2 percent, in contrast to an increase of 12.9 percent.

Such a huge swing in expenditures – especially the defense spending – is no accident. 

But wait, what about exports?  One of the cornerstones of Obama’s economic plan was to double our exports in five years (as announced in January of 2010).  Didn’t exports help?  If you’ve been following this blog, you probably already know the answer:

Real exports of goods and services decreased 5.7 percent in the fourth quarter, in contrast to an increase of 1.9 percent in the third.

Exports are declining – 3.8% in the past 6 months.

The question now is whether the decline in GDP will continue.  Two consecutive quarterly declines constitutes a recession.  Is this the start of the double-dip that has been held at bay by massive stimulus spending, spending that’s now drying up as a result of the fiscal cliff resolution and upcoming big defense spending cuts?  Maybe.  Personal consumption expenditures held up pretty well in the 4th quarter as they usually do, fed by the holiday shopping frenzy.  But that’s not likely to continue now that tax rates have risen by 2%. 

Real per capita GDP, though it has recovered somewhat from the 2008/2009 “Great Recession,” remains almost $1,000 below its pre-recession level, and this may be as good as it gets.  In a society that has already breached its economically optimum population density – the point at which per capita consumption is driven into decline by over-crowding – it comes as no surprise that everyone’s slice of the economic pie is diminishing.


GDP Up, But Don’t Look Too Deep

January 27, 2012

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

As reported by the Bureau of Economic Analysis this morning, 4th quarter GDP (gross domestic product) accelerated to an annual rate of increase of 2.8% from the 3rd quarter’s pace of 1.8%.  The stock market fell in response.  Why?  Because contrary to the rosy economic news that we got during the 4th quarter – driven by booming holiday sales, this GDP report paints a different picture.  Of that 2.8% increase, most of it – 1.9% – was due to nothing more than increases in inventories, and rising inventories are never a good sign for the economy.  Strip that away and the real increase in GDP falls to a measley 0.8%.  Or, worse, if the increase in inventories results in slowdowns in production driven by inventory control, we could actually see a slowdown in the 1st quarter of this year.

Expressed in per capita terms, the news is even worse, of course.  Take away inventory growth and the per capita rise in GDP falls to zero.  In other words, there’s a very real possibility (or even a likelihood) that the economy has stalled.  Worse yet, federal spending under the American Recovery Act (the “stimulus” plan) is nearly finished.  And now the pentagon is in the process of slashing costs.  Additionally, the cut in payroll taxes is due to expire in a month, and it’s no sure thing that it will be extended; and it’s very unlikely to be extended without corresponding cuts in spending that will pull as much out of the economy as the tax break puts in.  All of this taken together spells big trouble for the economy.  It’s no wonder that the Federal Reserve vowed to keep interest rates at zero for another three years.

For all of these reasons, I stand behind my prediction that 2012 is going to be a bad year for the economy.  The tactic of using debt to mask the effects of the trade deficit has been exhausted and the trade deficit is steadily getting worse.  

The following is a chart of GDP per capita:  Real Per Capita GDP.  Note the convergence of the two lines -GDP per capita with and without stimulus spending – now that the stimulus spending has been virtually exhausted.


Did the Government “Rig” 3rd Quarter GDP?

October 27, 2011

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Prior to the release of this morning’s report of 3rd quarter GDP, economists had been forecasting an annual rate of increase of 2.5%.  I thought they were crazy.  Did it feel like the economy grew in the 3rd quarter?  Not to me or to anyone else.  Most economic reports were negative during the quarter, prompting speculation that the U.S. was sliding back into recession.

But, sure enough, 3rd quarter GDP came in exactly as forecast – an annual rate of growth of 2.5%  (See the above link.)  So I began to update my spreadsheet in preparation for this post.  If you’ve been a follower of this blog, you know that I’ve been following not only GDP and expressing it in per capita terms, but I’ve also been tracking what GDP would have been without the spending attributable to the “American Recovery and Reinvestment Act of 2009,” since that spending would end in a couple of years.  It’s important to know what shape the economy is in when that spending goes away. 

Spending on the Recovery Act peaked in the 2nd quarter of 2010 – over a year ago – and has been winding down ever since.  The Act authorized a total of $807 billion in spending, which was expected to last a couple of years.  Through the 2nd quarter of 2011, $660 billion had already been spent.  Spending had slowed to $26.8 billion in the 2nd quarter of this year. 

So it seemed unlikely that the nice bump in GDP coud be attributed to spending on the Recovery Act.  But, boy, was I wrong!  Recovery Act spending in the 3rd quarter of 2011 jumped to $62.1 billion, it’s highest level since such spending had peaked in the 2nd quarter of 2010!  (Here’s a link to the Recovery Act web site:  http://www.recovery.gov/Pages/default.aspx.  And here’s a link to the cells in my spreadsheet that track the stimulus spending:  stimulus spending by quarter.)  Take away that spending and 3rd quarter GDP would have actually contracted at an annual rate of 1.8%!  Worse, if you factor in population growth and express GDP in per capita terms, it contracted at an annual rate of 2.6% in the 3rd quarter, falling to $41,958 per person – lower than it was in the 4th quarter of 2004.

Here’s my chart of GDP per capita, with and without stimulus spending:  Real Per Capita GDP

Did the government intentionally boost Recovery Act spending – through actual spending or accruals – in order to rig the 3rd quarter GDP numbers?  Or was the sudden spike in spending explainable and a mere coincidence?  The third quarter is actually the last quarter of the federal government’s fiscal year.  Was there a push to pull forward spending in order to make spending next year (an election year) appear to be reduced?  Or were there valid reasons to accrue spending at the end of the fiscal year?  I don’t know, but it looks extremely suspicious that this was a tactic used to rig the GDP number and make the economy appear to still be growing when, in fact, we are sinking deeper into recession.

What I do know is this:  the Recovery Act spending is nearly over.  In August, Congress agreed to hundreds of billions in cuts.  And, soon, the “super committee” will identify another $1.5 trillion in cuts to federal spending.  Take away all that spending (or even some of it, since it’s sure to be back-loaded over 10 years), and the result will be big downward pressure on GDP.  Anyone who looks at today’s report and draws encouragement that the worst of the downturn is behind us is making a very big mistake.