A Trump Report Card

April 23, 2019

It’s been a while since I’ve posted anything, and thought it’d be a good time to give President Trump a sort of mid-term report card, albeit a little late.  I’ll grade him in two subjects only – immigration and trade policy – since these two areas address the economic effects of population growth, both actual growth the effect of growth imported through trade with overpopulated nations, the focus of this blog.  Beyond these, little else matters.  What about environmental policy?  Without a focus on stabilizing our population (and virtually all of America’s population growth is driven by immigration), all other environmental policies are doomed to failure.  What about foreign policy?  It’s impossible to project strength in the world if you’re weak on trade.

So, with that said, let’s begin with the good news:

Immigration Policy:  A+

Trump has done a fantastic job on both illegal and legal immigration, each of which had been contributing a million people per year to America’s population growth.  Thanks both to Trump’s zero tolerance policy for illegal immigration and dramatic cuts in legal immigration, the Census Bureau reduced its estimate of the U.S. population by 1.3 million people at the end of 2018.  He spent a lot of political capital in his efforts to get funding for a border wall and, when Congress wouldn’t agree, had the guts to declare a national emergency to obtain the funds.  “What emergency?” the media cried at first, but not for long, when their own reporters in the field began reporting on the humanitarian crisis at the border that resulted from the adminstration’s efforts to enforce the law instead of turning a blind eye to illegal immigration as previous administrations have done.  Now there’s virtually no complaints about Trump’s enforcement efforts or his emergency declaration.  His policies are likely responsible for the fact that increases at the low end of the wage scale are outpacing higher income increases.  Recently, during a trip to the southern border, Trump declared that “Our nation is full.”  Truer words were never spoken.  Ultimately, this is the biggest reason that immigration needs to be reduced.  Trump has done an absolutely fantastic job of reining in out-of-control immigration.

That’s the good news.  Now for the not-so-good:

Trade Policy:  D

Such a low grade may seem surprising and harsh, especially in light of the tariffs on metals and his seemingly tough position with China, including a 25% tariff on some items and a 10% tariff on half of all Chinese imports.  However, it’s those very actions that elevate his score to a “D” from an “F”, the score I’d give to every previous president going as far back as Franklin Roosevelt.  They’ve been a nice start, but fall far short of what we were led to expect from him in the way of trade policy.  Like all previous presidents of the modern era, Trump has been sucked into endless trade negotiations, a ploy that nations with large trade surpluses have used successfully for decades to forestall meaningful action by the U.S. – namely, tariffs.  We were promised that the North American Free Trade Agreement (NAFTA) would be torn up or promptly replaced.  Trump’s administration did negotiate a new agreement, but one that reportedly does little to shrink the enormous deficit with Mexico and it may never even be enacted, if Congress has its way.

Action on China is stalled.  Tariffs on auto and parts imports now appear to be idle threats.  Beyond China, there’s been no action on reducing the trade imbalance with other nations like Germany, Japan, South Korea, Taiwan, Vietnam and a host of others.  The trade deficit in manufactured goods has continued to explode to new record levels under Trump.  Employment in manufacturing has stalled once again.  Trump sees trade as a venue for demonstrating his deal-making prowess, and he sees tariffs as leverage to use in trade negotiations.  He doesn’t understand that favorable “deals” with overpopulated nations are impossible and a waste of time, and that tariffs are the only way to restore a balance of trade with those nations.  Regarding the ongoing trade negotiations with China, he recently declared that the U.S. will win, whether a deal is reached or not.  He’s wrong.  The Chinese have already won by sucking him into time-wasting talks that, at best, will yield a deal that the Chinese will use to continue to grow their trade surplus with the U.S.  He had them on the ropes with the tariffs and then caved in, letting them off the hook.

In summary, Trump’s trade policy is stalled and our trade deficit is getting worse, not better.  This has been a major disappointment.  He’s wasted valuable time.  As I’ve said many times, a tariff program will produce some pain in the short term as prices rise and companies are slow to build manufacturing capacity in the U.S., but will ultimately yield incredible economic growth once that capacity is in place.  Had Trump been more aggressive with tariffs, the short term pain would have given way to some major economic gains by the time of the 2020 election.  Now, that’s probably not possible and, instead, his economic program is at risk of stumbling into the election.

He’s done a terrific job on immigration but all may be lost if he doesn’t get his trade policy off dead-center.

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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.


Trade Deficit in Manufactured Products Explodes in December

March 6, 2019

http://www.bea.gov/system/files/2019-03/trad1218.pdf

The Commerce Department announced this morning that the U.S. trade deficit grew to $59.8 billion in December, the worst reading in ten years.  But that doesn’t begin to tell the story.  The deficit in manufactured goods exploded in December to $77.3 billion, obliterating the previous record set only two months earlier.  Look at this chart:  Manf’d Goods Balance of Trade.  Exports rose by $6.1 billion to $189.2 billion – a new record – while exports fell $1.8 billion to $111.9 billion – virtually the same reading as in March, 2012.

On an annualized basis, the December deficit in manufactured goods is $927 billion.  It’s entirely possible that the deficit in manufactured goods will exceed one trillion dollars in 2019.  The U.S. economy is headed for a train wreck if something isn’t done.  The federal government can’t sustain the level of deficit spending needed to offset the trade deficit’s drain on the economy.

President Trump has got to get serious about halting the flood of imports that’s wrecking the manufacturing sector of our economy. The token tariffs he’s enacted so far are much too small and too narrowly focused to do anything other than take a small bite out of exporters’ profits.  Trade deals don’t work.  The rest of the world isn’t going to deal away their one trillion dollar surplus.  The negotiations with China are a waste of time.  He needs to raise the tariffs on all Chinese imports to at least 25%.  He needs to put 25% tariffs on all auto, truck and parts imports.

So far Trump’s pledge to “Make America Great Again” has boiled down to nothing more than a tax cut sugar high that has boosted the economy only slightly.  Americans who voted for Trump expected more.


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?”


U.S. Employment Picture Darkening?

May 9, 2018

There was a lot of hoopla that accompanied the April employment report, released last Friday by the Bureau of Labor Statistics.  The economy added another 164,000 jobs and the unemployment rate fell to 3.9% – the lowest rate since December of 2000.  Much discussion ensued in the media over the effects of “full employment.”  Will there now be upward pressure on wages, prompting the Federal Reserve to raise interest rates?  Where will employers find the workers they need?  Will the shortage of labor constrain economic growth?

Less notice was taken of some not-so-rosy news in the report.  Wages rose less than expected – only 0.1%.  The labor force participation rate fell by 0.1%.  And literally no one took notice of some even darker news in the report.  The employment level (from the household survey) rose by only 3,000 after falling by 37,000 in March.  And the civilian labor force has fallen by nearly 400,000 over the past two months, reversing much of the spike that occurred in February, and contributing to the drop in unemployment.  Without that decline in the labor force, unemployment would actually have risen by two tenths over the past two months.

In fact, per capita employment has risen only twice in the past seven months – a two-month spike that occurred in January/February – and remains at exactly the same level as in September.  And the number of unemployed has actually risen slightly.

The fact is that there remains a lot of slack in the labor force.  An accurate reading of unemployment – one that grows the labor force along with growth in the population (instead of erasing people from the labor force if they give up looking for work) – has unemployment at 6.8% and U6 unemployment (a less reported measure that includes discouraged workers) at 12.0%.  This Reuters article, contrary to the title of the article, admits as much – that the job market is “hot” only if you don’t count all the people who have been left behind.

The current expansion is among the longest ever and brought national unemployment to an 18-year low. Yet over 6.3 million are still out of work, many of them clustered in cities with chronic, high unemployment.

6.3 million people is the number that were unemployed before the “Great Recession” of 2008.  It doesn’t even count the additional 5 million people who still haven’t been put back to work since then.

None of this is surprising.  Though the Trump administration is making moves in the right direction with the process of renegotiating NAFTA (the North American Free Trade Agreement), with the imposition of tariffs on steel and aluminum, and with threats of a trade war with China, there has yet to be much in the way of meaningful results.  Our trade deficit is as bad as ever.  Further delay in progress on trade will risk a return to a stagnating economy.


No Weaknesses in February Employment Report

March 10, 2018

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

Ever since the “Great Recession,” as the economy very slowly recovered, there have always been some hidden weaknesses in even the best of reports.  If the economy added a lot of jobs as measured by the establishment survey, the employment level, as measured by the household survey, didn’t measure up.  If the unemployment rate dropped, it was often because some of the labor force had mysteriously vanished.  Or the average work week declined.  Or there were downward revisions to the previous two months.

But not this time.  The economy added 313,000 jobs – much more than expected.  And the growth in employment blew past that figure, rising by 785,000.  The only reason that the official unemployment rate didn’t drop is because the labor force grew by 806,000 – in a month when the total population grew by only 160,000.  So where did all of these workers come from if the economy was at “full employment” as so many “economists” would have you believe?  They came from the labor force backlog that was created by the “mysteriously vanishing labor force” trick employed by the Obama administration.  As a result, the labor force participation rate rose by 0.3%.

And there was more good news.  Manufacturing employment rose by 31,000 and is now up by 125,000 in just the last four months.  The average work week increased by 0.1 hours and wages rose by 0.1% – a modest increase, but one that keeps wage growth year-to-year at 2.6%, which is greater than inflation.  And the numbers of jobs added were revised upward for both December and January, adding another 54,000 jobs.

I’ll admit that the growth in manufacturing employment puzzles me.  Exports haven’t grown at all, while imports have been soaring.  That leaves domestic consumption as the only possible explanation, but GDP (gross domestic product) grew at only a 2.5% rate in the fourth quarter.  Perhaps growth is accelerating in the 1st quarter?  Perhaps manufacturers are beginning to sense that, while the tariffs we’ve seen so far under Trump have been modest, Trump means business with his “America First” approach and they are changing their strategy away from off-shoring and back toward more domestic production.  If that’s what’s happening, and if Trump continues to levy more tariffs to help domestic manufacturers, then the job gains we saw in February may be only a small taste of what’s to come.