Friday, September 5, 2014

What is the state of the American economy right now in September 2014?

The trade deficit in manufactured goods is a very important economic indicator.  

If the trade deficit is $702 billion, as it was in 2013, it means that we had to send out a net amount of $702 billion to foreign countries to pay for imported manufactured goods.  That is a lot of wealth to send out of our country, never to be seen again. 

This amount is about $2,200.00 for each and every man, woman, and child in America.  

Here is a complete list of trade deficit figures, in billions of dollars, since 2005: 

2005  $783

2006  $837

2007  $821

2008  $833  The year of the crash.

2009  $510  First full year after the crash.

2010  $649

2011  $741

2012  $742

2013  $702  Latest full year available. 

The figures are trending down over the last few years.  Do these figures indicate that we are importing less and exporting more?

Export and import figures

I also looked at actual export and import figures, separately, not combined into "trade deficit".

I looked at 2007 and 2013.  I took into account the increase in population from 2007 to 2013.

Per person, exports of manufactured goods increased by a factor of 1.3 from 2007 to 2013.

Per person, imports of manufactured goods increased by a factor of 1.1 from 2007 to 2013.

These results provide some encouragement.  Exports are increasing faster than imports.

Note that these results are based on a comparison between 2007 and 2013.  No attention is given to the intermediate years.

We would have to see a further improvement for the full year 2014, and for 2015, before we can draw a firm conclusion.  

Trade with China

The above figures include all foreign countries we deal with.  Here are the figures for China only.

China trade deficit in billions of dollars : 

2011 $296

2012 $315

2013 $318

2014 $329 estimate for 2014  

Our trade deficit with China is increasing. 

Total manufacturing output in the United States

I looked at total manufacturing for 2nd quarter 2007, before the crash, and I also looked at 2nd quarter 2014.  I brought population into the picture, so we can look at total manufacturing per person. 

For 2014, manufacturing output for 2nd quarter was 94% of the figure for 2nd quarter 2007.  So we have not caught up with where we were in 2007.  

We started sending our manufacturing away in the 1960s.  Manufacturing in 2007 was well below manufacturing levels in the 1970s and 1980s.  So today in America we are nowhere near where we should be in terms of manufacturing.

The only way to improve the employment situation, and improve the economy generally, is to reduce importation of manufactured goods, and increase domestic manufacturing.

I say that we have to sit down with our foreign suppliers, China, Mexico, Japan, and many others, and negotiate reductions in manufactured goods shipped to the United States.  We have to explain to these countries that if there is no voluntary reduction, our purchasing power will go down, forcing a reduction in imports, just like there was in 2009. 

In other words, we have to explain to our foreign suppliers that there is the strong possibility that they will kill the goose that lays the golden eggs.  (The goose is of course America and the golden eggs are the huge amounts of money we send out to foreign countries to pay for imported goods.)

There is a strong precedent that we can rely on in negotiations with our foreign suppliers.  China announced in 2006 a long-term plan to become self-sufficient in all manufactured goods.  So China intends to be no longer a trader.  Everything will be one-way only. Is America supposed to be a dumb bunny, continuing to buy from China, while China eliminates even the relatively small current purchases from us?