Post-Microrecession Blues In Trade and Jobs

We marked the end of the year-long microrecession in the United States yesterday, so today, we thought we'd check in on two of the lagging indicators of a nation's economic health: trade and jobs.

Our first chart shows how the year-over-year growth rate in the value of goods between the United States and China has been recorded by the U.S. Census Bureau for each month from January 1986 through July 2013. To account for changing currency exchange rates between the two nations, we have adjusted the values so that they are expressed in terms of the "receiving" nation's currency, with the growth rate of U.S. exports to China being based on the value of those goods expressed in yuan, and the growth rate of U.S. imports from China being based on the value of those goods expressed in U.S. dollars:

We find that both nations would appear to be have been experiencing sluggish rates of growth for the last several months. Looking just at July 2013, China's economy would appear to have fallen into recessionary territory for the third time since March 2013, as the pace of economic growth within that nation would not appear sufficient to increase its demand for the goods it imports from the U.S. Likewise, the pace at which the U.S. imports goods from China also indicates sluggish economic growth, although this month, it is in positive territory.

The sluggish growth rates observed in the past several months is not surprising given that the U.S. has only just exited a period of microrecession in August 2013, while China's economy has slowed to a very lackluster pace of growth. Since the decisions of what volume of goods to ship overseas is made many months in advance of their arrival at their destination nation's ports, which depends upon the business conditions observed at the time the decisions are made, what these growth rates are communicating are the economic conditions that existed in the respective nations several months ago.

Like international trade, jobs, as measured by the number of employed, also tend to lag behind real changes in the economy. The chart below shows how the number of employed Americans by select age groups has changed since the total number of employed Americans peaked in November 2007, just ahead of the so-called "Great Recession", through August 2013:

If you look at the data at the beginning of the Great Recession, we see that there was very little job loss at the very beginning, and no job loss outside of teens and young adults (Age 16-24) until April 2008, five months after the official start of the 2007 recession.

To take that lag effect for jobs into account, we'll use November 2012 as our start month for measuring changes in the number of employed in the U.S., since that would be five months after our dividend data first indicated the U.S. economy was experiencing recessionary conditions back in July 2012. We obtained the following figures for the net change in number of employed from November 2012 through August 2013 for each of the following age groups we regularly track:

• Teens (Age 16-19): -58,000 (from 4,468,000 in November 2012 to 4,410,000 in August 2013)


• Young Adults (Age 20-24): -52,000 (from 13,595,000 to 13,543,000)


• Adults (Age 25 and Older): +1,003,000 (from 125,214,000 to 126,217,000)

It seems the U.S. economy has been no country for young men, or women, for many months.

Still, with the microrecession just behind us, we would expect to see several more months of lackluster jobs numbers for young Americans before things really pick up as the recovery from the microrecession that ran from July 2012 through July 2013 gets underway.

Perhaps just in time for Christmas!

References

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 11 September 2013.

U.S. Bureau of Labor Statistics. Employment Situation Report Archive. Accessed 11 September 2013.

U.S. Census Bureau. Trade in Goods with China. Accessed 11 September 2013.

U.S.-China Trade: Two Nations in Near Recession?

In June 2013, the year-over-year growth rate of the value of trade between China and the United States was such that both nations' economies could be considered to be in recession.

That's the conclusion we reach in observing that the value of the growth rate of China's exports to the U.S. drop just below the zero line, while the value of the growth rate of the U.S.' exports to China rose just above it. And unlike the February-March 2013 time frame, where the year-over-year data was greatly affected by the relative timing of the week-long, Chinese New Year/Spring Festival holiday, there isn't an alternative explanation that accounts for the very slow or negative growth in the value of trade between the two nations.

And that means that very weak economic growth in both nations is responsible for the slowdown we observe in the growth of trade between the U.S. and China, which is presented in the following chart in terms of the receiving nations' own currency.

The important thing to take away from this analysis is that the data for international trade tends to lag the economy.

The reason why is very straightforward. The decisions to produce goods that will be exported to markets in other countries are made many months in advance of their arrival in the ports of those other nations. And that is time on top of the weeks that it takes for cargo to reach either nation after it has been loaded onto the ships that deliver it.

Consequently, the goods that ship out in international trade will do so in accordance with the economic conditions that prevailed in the nation to which the goods will be delivered many weeks, if not months, earlier than the dates that they arrive in the destination nation's ports.

That means that the negative growth in trade that we observe for the U.S. in June 2013 is really indicating the economic conditions in the U.S. that Chinese producers were seeing several months ago, which confirms what the data we track regarding the health of the U.S. economy has been telling us: the U.S. economy has been experiencing recessionary conditions.

Here, that matters because the U.S. has been skirting the edge of a recession since July 2012 and seems only just now to be starting to come out of it. Given that the year-over-year growth rate in international trade is a lagging indicator of the relative economic health of nations, that means we may continue to see more lackluster months of trade growth before we'll see an increase in the value of goods being exported to the U.S. from China as its economy recovers.

China Back in Recession, U.S. Economy Sluggish

Now that we're well past the statistical anomalies associated with the timing of the Chinese New Year/Spring Festival holiday, the year-over-year growth rates of the value of trade between the U.S. and China indicates that China's economy has likely fallen back into recession, while the U.S. economy is growing, if sluggishly, through May 2013:

The data in the chart above has been adjusted to reflect what each nation's economy "sees" in terms of its own currency. For the most recent trends in the overall data, the value of the U.S. dollar has been falling steadily with respect to the value of the Chinese Yuan since May 2010, as the relative value of U.S. goods in China has fallen while the relative value of Chinese goods in the U.S. have become more expensive.

References

U.S. Census Bureau. Trade in Goods with China. Accessed 03 July 2013.

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 03 July 2013.

Teasing Out the Real Story for March 2013's U.S. Imports from China

Following our previous look at trade between the United States and China, we believe we've sorted out much of what happened with China's exports to the U.S. in March 2013.

Here, it appears that much of the fall in the year-over-year growth rate of China's exports that we observed in March 2013 was really tied to the timing of the Chinese New Year/Spring Festival holiday, which effectively ran during the week from 9 February 2013 through 15 February 2013. The late timing of this holiday in 2013 then impacted the volume of cargo from China reaching the U.S.' west coast ports in March because of the 1-1/2 to 3 week long transit time to reach them.

This factor also explains why the year-over-year growth rate for China's exports to the U.S. in February 2013 was so high. The earlier timing of the Chinese New Year/Spring Festival holiday in 2012 placed the holiday-related trough for U.S. imports from China in February 2012.

But what's the real story here with respect to the relative health of the U.S. economy? To find out, we've combined the volume of trade for February and March of 2012 ($59,626.5 billion USD) and also for February and March of 2013 ($60,036.7 billion USD) to calculate the overall year-over-year growth rate for these combined months of 0.7%.

We consider that level to be near-recessionary. Let's next look at the year-over-year trade growth rate data between the U.S. and China for the month of April 2013, which is not impacted by the timing of the Chinese New Year/Spring Festival holiday.

Here, we see that the year-over-year growth rate of the U.S.' exports to China of 4.3% have bounced back to be near their February 2013 level, as there are no historic anomalies in the data (as there were in March 2012). This rate of increase is consistent with a Chinese economy that is growing slowly.

More significantly however, we find that the year-over-year rate of growth of the U.S.' imports from China in April 2013 is 0.3% - less than it was in the combined February-March 2013 period.

We therefore find that U.S. economy is continuing to perform very sluggishly, as it slowly decelerated in April 2013 from an already low level. A more robustly growing economy would be drawing in increasingly higher levels of goods over time.

The March 2013 Crash for U.S.-China Trade

Yesterday, we found that the number of announced dividend cuts in the month of April 2013 was consistent with recessionary conditions being present in the U.S. economy.

Today, we're going to use international trade data to see if there's more to that story.

To do that, we'll be taking advantage of our observation that when a nation's economy is expanding, it will typically import an increasing level of goods from other nations, which we see in the form of a positive year-over-year growth rate for its imports. Conversely, if a nation's economy is contracting, we'll see it show up in the form of a negative growth rate for the goods it imports from beyond its borders.

Here, we'll use the international trade data provided by the U.S. Census Bureau for the value of trade between the world's two largest economies: the U.S. and China. Our first chart measures the year-over-year growth rates in the value of trade between the world's two largest economies after adjusting for the changing relative value of each nation's currency with respect to each other through March 2013, the most recent month at this writing for which we have data.

What we find right off the bat appears to be alarming, as the year-over-year growth rate of the trade between each nation appears to have plunged well into the negative territory that would indicate recessionary conditions are at work in each nation.

However, because we calculate year-over-year growth rates, we have to consider the possibility that there may have been an unusual spike in the volume of trade from a year ago, which might account for the unexpectedly negative result we observed in our first chart.

Our next chart looks at the value of goods imported by China from the U.S. (or exported from the U.S. to China, if you prefer) for each month from January 2012 through March 2013:

What we find in this chart is that there was indeed an unusually large upward spike in the value of goods exported from the U.S. to China in March 2012, which accounts for the negative year-over-year growth rate result.

Digging into the Census Bureau's underlying trade records, we found that much of this spike might be accounted for by a sharp increase in the number of agricultural products the U.S. exported to China (primarily soybeans) and raw materials (such as metal ores) in that month, which has simply not been repeated in March 2013.

And looking at the recent trend in international trade data, we find that the overall value of U.S. exports to China is generally higher than the values recorded a year ago (with the exception of the unusual spike in March 2012), so it would appear that China's economy is actually comparatively healthy - the negative growth rate we observe is simply a data anomaly.

But then, we looked to see if a similar spike might explain the apparent crash in the value of goods that the U.S. imported from China. And we came up empty:

What this chart tells us is that the U.S. economy may have suddenly turned south in the month of March 2013, as the value of the goods it imported from China appears to have fallen rather dramatically, and taken in conjunction with the elevated number of U.S. companies declaring cuts in their dividends in April 2013, that suggests that there is indeed something contractionary going on in the U.S. economy.

Considering the likely "theory" that will be advanced in some quarters to explain the sudden drop-off in U.S. imports from China in March 2013, we expect that some might suggest that the recent federal government budget sequester might be behind the observed decline.

However, we find that the timing of the import crash doesn't work for that potential explanation. None of those government spending cuts took effect until nearly the very end of March, after most of the international trade recorded for the month had already occurred. And since the arrangements for things being shipped from overseas have to be made months in advance, that would be the second strike against this explanation.

And then, there's the little matter about which federal government spending is affected most by the budget sequester. With about 50% of the spending cuts affecting U.S. military programs, even if the timing did work out for the sequester to be a factor affecting international trade data, it just wouldn't make sense for so much defense spending (and really, government spending in general) to really be going to support the purchase of goods from China. That would be the third strike against such a theory having any real connection to what we actually observe in the data....

In reality, it's too early to tell if that means an economic contraction suddenly began to take root in the U.S. economy in March 2013. After all, how do we know that March 2013 didn't see an unusual negative spike in the value of goods being imported into the U.S. from China? We could be seeing the exact opposite of what happened with U.S. exports to China a year earlier!

We'll know more in a month....

New U.S. Housing Bubble Sparks Import Surge from China

From all appearances, the U.S. economy is now performing much more strongly than China's economy.

Going by the growth rate of the value of trade between the two nations, it appears that the U.S. economy turned a corner in August 2012, when it briefly turned negative. Since then, the relative health of the U.S. economy appears to have improved, which we see in the form of a rising demand for imported goods. For the data just released for February 2013, it appears that pace of economic growth in the U.S. is outstripping the rate of growth in China.

Meanwhile, the pace of growth of the Chinese economy appears to have rebounded off its slowness from last year, confirming that nation's economy has likewise improved, although not at the same rate as the U.S. economy.

This period of increased demand for imported goods in the U.S. approximately coincides with beginning of the sudden inflation in new home sale prices, as the housing sector of the U.S. economy began to show signs of a new bubble beginning to inflate in August 2012. Here, U.S. new home sale prices began to surge at a rate not seen since the first U.S. housing bubble ignited into its rapid inflation phase after November 2001.

That activity, in turn, appears to be what has sparked an increasing level of Chinese exports to the United States. We can confirm that much of this increase was driven by the improvement of the housing sector of the U.S. economy, as 54.6% of the year-over-year net increase in the total dollar value of goods imported into the U.S. from China in 2012 is represented by such goods as household and kitchen appliances, furniture and especially other kinds of household items.

Or rather, exactly the kinds of things you would expect to be in demand to support an improved housing sector of a nation's economy, which we'll take another look at soon.

China Surpasses U.S. in International Trade

In 2012, China became the world's biggest trading nation, with the total value of that nation's exports and imports surpassing those of the United States. Bloomberg reports:

U.S. exports and imports of goods last year totaled $3.82 trillion, the U.S. Commerce Department said last week. China’s customs administration reported last month that the country’s trade in goods in 2012 amounted to $3.87 trillion.

Since we have the data, we thought it might be interesting to see just what portion of China's volume of trade is with the United States. Our charts below show the component data for what the U.S. has imported from China, and also what the U.S. has exported to China in each month since January 1985, in terms of each nation's currency (click the images for larger versions):

Taking the data just for 2012, we find that the total value of goods and services China either imported from or exported to the U.S. adds up to $536.2 billion U.S. dollars. With a total trade volume of $3.87 trillion U.S. dollars in 2012, China's trade with just the United States accounts for 13.9% of all its international trade activity. Applying similar math for the United States reveals that the U.S.' trade with China accounts for 14.0%, or just under 1/7th, of all its international trade activity.

Our next chart shows the rate of growth of each nation's exports to the other, which provides an indication of each nation's relative economic health.

Here, a nation experiencing economic growth will tend to increase the year-over-year rate at which it imports goods from other nations to meet growing levels of demand in its domestic economy. We see that both the U.S. and China have been experiencing near-recessionary levels of sluggish economic growth in 2012, with the U.S. economy slowing and China's economy improving during much of the year.

US-China Trade: Modest Improvement in Late 2012

Picking up from where we left off, we find that the exchange rate-adjusted growth rate of trade between the U.S. and China showed some improvement in October and November 2012:

China saw an uptick in the year over year growth rate of its U.S. imports to 9.6% in October 2012, which fell back in November 2012 to 4.6% - a level that we have found to be consistent with near-recessionary levels of economic growth in that nation.

Meanwhile, the U.S. imported a increasing amount of goods from China in both October and November 2012, with a year over year growth rate of 4.8% in October and 5.6% in November. While an increasing year-over-year growth rate would indicate a growing economy, we should note that the trade figures tend lag the economy by anywhere from one to three months, so this result may be consistent with the solid growth the U.S. economy recorded in 2012-Q3.

The overall value of trade between the two nations hit an all-time record in October 2012, with the U.S. exporting $10,823.3 billion in goods and services to China and importing $40,289.5 billion in goods and services from China. These peak values were partly due to the falling value of the U.S. dollar with respect to the Chinese yuan.

Data Sources

U.S. Census Bureau. Trade in Goods with China. Accessed 13 January 2013.

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 13 January 2013.

Factoring in the Falling Dollar for US-China Trade

In a article, we indicated that the U.S. Census' data on the value of U.S.-China international trade was overstating the growth in the value of that trade because of the falling value of the U.S. dollar with respect to China's currency, the renminbi (or as its often referred to in foreign exchange, the yuan):

Here, we see that the growth of China's exports to the United States is continuing its trend of slow growth, while following its typical seasonal pattern. Typically, China's exports to the U.S. peak each year in the period from August to October, in advance of the U.S.' holiday shopping season.

In reality, because the value of the U.S. dollar has been falling with respect to the value of China's currency since early 2010, the value of trade shown in the chart above represents a lower quantity of actual goods and services traded today than what similar values in 2010 would indicate.

Today we're going to show that's exactly the case. In our first chart, we're showing the value of goods and services imported by the United States from China priced in both U.S. dollars, as reported by the U.S. Census, and priced in Chinese yuan, going by the official exchange rate recorded by the U.S. Federal Reserve.

In the chart, we've tweaked the vertical scale for the Chinese yuan so that it corresponds to that currency's minimum value with respect to the U.S. dollar from January 1994, when the value of the yuan was set to be worth just 11.46 cents (or 0.1146 U.S. dollars). As of October 2012, the relative value of the dollar has fallen so that one yuan is now worth 15.96 cents (or 0.1596 U.S. dollars).

With that visual adjustment made, we discover that from the Chinese perspective, there has been almost no increase in the value of China's exports to the United States since 2010, and very little growth since 2007.

Our second chart shows how U.S. exports to China have fared in terms of both U.S. dollars and Chinese yuan:

Measured in terms of China's currency, we find that the value of U.S. exports to China has actually been declining since they peaked in January 2010, which coincides with the peak of that nation's economic stimulus spending, which it had earlier specified on 6 March 2009. (The announcement of how the Chinese government would implement its massive stimulus program is the economic event that finally arrested and reversed the steep decline of the U.S. stock market at the time following the U.S. fiscal crisis of 2008.)

Our final chart shows the year-over-year growth rates for the U.S. imports from China calculated in terms of the U.S. dollar-based data and for U.S. exports to China calculated in terms of Chinese yuan-based figures, since these units are how each nation's economy would actually see the value of trade imported from the other nation:

Through September 2012, we find the year-over-year growth rate of trade between the two nations is at near-zero levels of growth, indicating near recessionary conditions if we take this measure as an indication of the relative health of the economies of both nations. But perhaps the real news is what factoring in the falling dollar does for our impression of the health of China's economy.

Previously, using just the U.S. dollar-based growth rate of U.S. exports to China, we found that China's economy had entered into recession in December 2011.

But after factoring in the falling value of the dollar over time, which results in the growth rate of trade between the two nations being overstated on the Chinese side of the trade balance, we find that China's economy really slipped into recession some two months earlier, in October 2011. This month coincides with the beginning of a period of contraction for China's manufacturing industries.

Going forward, we'll be using this improved version of our trade growth rate chart in our analysis of the relative economic health of both the United States and China.

US-China Trade: Flatlining Year Over Year Growth

Some time ago, we discovered that we could diagnose the relative health of national economies by measuring the growth rate of trade between nations. Now that the data is available through September 2012, we're updating our analysis of the relative health of the economies of both China and the United States.

Our first chart shows where things stand with respect to the year over year growth rate of what each nation exports to the other:

What this chart tells us is that the value of trade between the two nations are continuing at near-zero levels of growth. For the U.S., that indicates a near-recessionary condition, while for China, this result indicates that nation is continuing in recession, now nearing its one year mark.

Next, let's look at our doubling rate charts, which illustrate the amount of time it has taken for the goods and services traded between the two nations to sustainably double in value. Our first doubling rate chart considers the value of the goods and services that the U.S. imports from China:

Here, we see that the growth of China's exports to the United States is continuing its trend of slow growth, while following its typical seasonal pattern. Typically, China's exports to the U.S. peak each year in the period from August to October, in advance of the U.S.' holiday shopping season.

In reality, because the value of the U.S. dollar has been falling with respect to the value of China's currency since early 2010, the value of trade shown in the chart above represents a lower quantity of actual goods and services traded today than what similar values in 2010 would indicate.

Next, we confirm that China's economy isn't growing very fast, as the value of goods and services exported by U.S. companies continues to be in the same narrow range it has been since December 2010.

Here, the falling value of the U.S. dollar with respect to China's currency means that this chart is also overstating the value of U.S. goods and services imported by China since 2010.

Comparing the two nations, the U.S. economy is currently performing better than the Chinese economy. However, that's not saying much considering the flatlining growth trend of trade between the two nations.

U.S. and China Trade Growth Hits Zero

Looking at the just published trade data between the U.S. and China, it would appear that both the U.S. and China have fallen into recession. Both nations are now showing near-zero annualized growth rates for the value of goods and services traded between them in August 2012:

That's a change from what we observed back in August, when it appears that China's economy had rebounded somewhat from a slow spring, based on the data then that only covered the period through June 2012.

Since then, the annualized growth rate of U.S. exports to China has fallen back to the low single digits that are consistent with that nation's economy being in recession. Going by international trade data, China entered into recession back in December 2011.

Meanwhile, the year-over-year growth rate of U.S. imports from China has turned negative for the first time since November 2009, when the U.S. was still coming out of recession.

So far, that's consistent with our earlier observation that the U.S. economy was in a microrecession in the second quarter of 2012, as the trade data collected and reported by the U.S. Census tends to lag the actual state of the economy by a number of months. The growth rate of the U.S. imports from China had last been negative in the period from November 2008 through November 2009, although officially, the previous recession in the U.S. ran from December 2007 through June 2009, with fairly mild recessionary conditions prevailing through the first half of 2008.

Reading the Tea Leaves for the U.S. Economy

First, the good news! After several months of pacing near recessionary levels, the value of U.S. exports to China kicked up to double digit levels in May and June of 2012. That increase suggests that China's economy is growing more strongly for the first time since that nation effectively entered into recession in December 2011.

The bad news is that the U.S. economy weakened in both May and June 2012, with the value of U.S. imports from China falling back to the single-digit levels that are consistent with near-recessionary conditions, as once again, international trade data confirms the scenario we first forecast more than a year ago.

We continue to anticipate that this will be a short-lived condition as the U.S. economy is likely to grow more strongly in the third quarter of 2012 before falling back toward those near-recessionary levels later in the year. At least, if the expected level of future quarterly cash dividend payments for the S&P 500 is any indication (and yes, they are!)

And now you know what to expect through the rest of this year!

The Quality of Government-Produced Economic Data

China's economy entered into recession in December 2011.

That's very old news to readers of Political Calculations, a little-read blog that somehow managed to scoop a number of financial institutions and even the New York Times in reporting on the poor health of China's economy back in February 2012.

At least now we know why so many of these organizations were so far behind the curve in understanding that a large-scale slowdown in China's economy has been underway for nearly seven months now - they appear to actually rely upon the Chinese government for their economic data. The New York Times might perhaps be finally recognizing that error in judgment:

HONG KONG — As the Chinese economy continues to sputter, prominent corporate executives in China and Western economists say there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of the troubles.

The article goes on to detail evidence of the slowdown that has shown up in recent months, mostly from an accumulation of stocks of coal, copper and other commodities, including the nation's rates of electricity production and consumption, which had previously been taken as a good measure of China's overall economic health.

But the thing that stands out to us is that they've known for decades that China's economic statistics were less than trustworthy, although for completely predictable reasons, they have become more unreliable during the past year:

Questions about the quality and accuracy of Chinese economic data are longstanding, but the concerns now being raised are unusual. This year is the first time since 1989 that a sharp economic slowdown has coincided with the once-a-decade changeover in the country’s top leadership.

Officials at all levels of government are under pressure to report good economic results to Beijing as they wait for promotions, demotions and transfers to cascade down from Beijing. So narrower and seemingly more obscure measures of economic activity are being falsified, according to the executives and economists.

"The government officials don’t want to see the negative," so they tell power managers to report usage declines as zero change, said a chief executive in the power sector.

As a result, a number of global financial institutions, who rely on China's economic data in assessing the potential for their investments in the country, were effectively caught with their pants down earlier this month:

Many Chinese economic indicators already show a slowdown this spring, with fixed-asset investment growing at its weakest pace in May since 2001. The annual growth rate for industrial production has edged below 10 percent, while electricity generation was up only 3.2 percent in May from a year earlier and up only 1.5 percent in April.

The question is whether the actual slowdown is even worse. Skewed government data would help explain why prices for commodities like oil, coal and copper fell heavily this spring even though official Chinese statistics show a more modest deceleration in economic activity.

Manipulation of official statistics would also provide a clue why some wholesalers of consumer goods and construction materials say sales are now as dismal as in early 2009.

Keeping accurate statistics for internal use by policy makers while releasing less grim figures to the public and financial markets may also help explain why China’s central bank suddenly and unexpectedly cut interest rates earlier this month.

Whoops! When the economic tide shifts, the worst thing that anyone in the financial world can be is late. Millions, and perhaps billions, of dollars are lost whenever that happens.

So how did a little-read blog manage to report that China's economy had fallen into recession over five months ago, well ahead of all these other venerable institutions?

Easy. That little read blog didn't use China's statistics to assess that nation's economic health. Instead, we used data collected and reported by the U.S. Census on the monthly value of the international trade between the two nations, which we think would be pretty difficult for Chinese officials to fabricate. As it happens, we've found that the year-over-year growth rate of that trade makes it possible to accurately diagnose the relative economic health of each nation, making this kind of analysis an excellent alternative to China's official government statistics for assessing the actual state of that nation's economy.

Speaking of which, here is what it looks like today:

The U.S. Census will update its foreign trade data through May 2012 on 11 July 2012.

In this chart, assessing China's relative economic health may be done by examining the data series shown with the blue data points, which correspond to the year-over-year growth rate of U.S. exports to China. Here, a national economy will demand more goods and services from outside its borders when it is is experiencing strong economic growth, which shows up as a positive growth rate - the more strongly the economy grows, the higher the positive value.

But when that growth rate turns negative or is near-zero, which we'll define as growing at just single digit rates, that communicates that the national economy in question is experiencing at least a significant economic slowdown.

What we observe in our chart above is that China's economy is trudging along at a very sluggish pace. And for all practical purposes, has been since October 2011.

Meanwhile, the data series shown with the red points, which correspond to the year-over-year growth rates of China's exports to the U.S., indicate that as of April 2012, the U.S. economy has been growing more strongly than the Chinese economy.

With the U.S. economy now passing through the equivalent of a microrecession however, we anticipate the May 2012 trade data will fall back toward the zero growth line on the chart.

But then, we didn't rely on the U.S. government's official economic data to work out that the U.S. economy would be struggling at this point of time. We used an alternative data source to first make that call over a year ago....

It's just a good practice to not rely too much on "official" data reports, which can frequently be really off track. That's also a big reason why our readers our rarely surprised by sudden and unexpected economic news.

The Doubling Rates of U.S.-China Trade Since January 1985

Currently, international trade data suggests that both China and the U.S. are undergoing significant, near-recessionary slowdowns in economic growth, if not outright recessions, which we strongly suspect is already the case for China, but not the U.S., which we believe will only skirt the edge this quarter.

But that's not the main focus of our post today, where we'll instead deploy our doubling rate chart of the value of exports the U.S. has sent to China in each month from January 1985 through February 2012:

And our doubling rate chart of the value of everything that the U.S. has imported from China over the same period of time:

What these two charts illustrate is the period of time in which the volume of either U.S. exports to China, or U.S. imports from China, have taken to sustainably double since January 1985. And by "sustainably double", we mean to exceed a previous level at which the volume has trade has doubled, without having fallen back below that level since.

For example, in looking at U.S. exports to China, we see that although the volume of U.S. exports was well above the previous doubling line of $2,553.6 billion for much of 2007 and 2008, the crashing of exports as China went into a full-blown recession in December 2008 extended the doubling period out to 65 months.

We likewise see a similar pattern for what the U.S. has imported from China since January 2006. Here, the U.S. recession, which deepened severely in late 2008 and early 2009 with the large-scale failures in the U.S. automotive industry, also pushed out the amount of time it has taken the volume of Chinese goods and services consumed in the U.S. to double from its previous mark. At present, it is six years and counting....

Since we've previously found that international trade may be used to diagnose the relative health of national economies, what this data indicates is that the U.S. economy has essentially "gone flat" in the period since those darkest days of the "Great Recession", registering only minor gains in the period since. That would be a confirmation of the perception that the U.S. economy has failed to adequately recover under the nation's current political leadership.

By contrast, China's economy has grown more strongly, at least until December 2011. We believe it's still too early to tell what direction the political winds might break in that nation as a result, although recent events may be providing a preview of what is to come.

What would be interesting to see is how those economies that have been tightly linked to China's growth will fare now that its economic tide has changed. We would expect those nations whose trade with China involves the export of raw materials to the Chinese will be among the most negatively affected. We'll see what data we can dig up for future posts on the topic....

China Enters Into Recession

China entered into recession in December 2011.

We base that observation upon our analysis of international trade data collected by the U.S. Census Bureau, where we have calculated the year-over-year growth rate in the value of goods and services that the United States has both exported to China and which the U.S. has imported from China.

Here, we observe that the year-over-year growth rate of U.S. exports to China has fallen into negative territory. Since a growing economy is one that draws an increasing level of exports from other nations, while a contracting economy is one that draws a falling level of exports, the year-over-year decline of U.S. exports to China in December 2011 indicates that China has indeed fallen into recession.

To help put that observation in context, the chart below reveals the annual growth rates of both U.S. exports to China (shown in blue) and U.S. imports from China (shown in red) since January 1985:

Meanwhile, we observe that the U.S. economy, as measured by the growth rate of China's exports to the United States, shows signs of very slow growth, indicating that it is near recession.

Our doubling rate charts present the value of U.S. exports to China and the value of U.S. imports from China. First, for the value of U.S. exports to China:

Here, we directly observe that U.S. exports to China have followed a seasonal pattern in recent years, topping out in December of both 2010 and 2011. However, in 2011, the value of those exports topped out at a lower level than they did in 2010.

Since the U.S. dollar has fallen in value with respect to China's currency over that time, effectively increasing the "dollar value" of U.S.-produced goods and services, that outcome indicates a falling quantity of exports being sent from the U.S. to China.

By contrast, the U.S. economy appears to be growing a bit more strongly than the Chinese economy:

Still, that growth in 2011 appears to be fairly anemic, as it is up only slightly from 2010 levels, indicating continued sluggish economic growth.

U.S.-China Trade: Reaching an Inflection Point

In October 2011, China set a new record for its exports to the United States, with the value of its goods and services being imported into the U.S. reaching an all-time high of $37.807 billion.

Unfortunately, the year over year growth rate of China's exports to the U.S. indicates that the U.S. economy, while doing a bit better than the months of May through September 2011, is still near recessionary levels.

Worse, we find that the year over year growth rate of U.S. exports to China has also reached near-recessionary levels, even as the value of the goods and services exported by the U.S. to China is still on track to peak by December 2011.

What we suspect is that the respective growth rates of the trade between the two nations are reaching a near-simultaneous inflection point, where instead of growing, which we would expect if the economies of China and the U.S. were both healthy, they are instead set to go flat or to become negative, as both nations would appear to be now experiencing near recessionary conditions.

It would seem that not even the kind of massive Keynesian economic stimulus spending that China engaged in back in 2009 and 2010 is sustainable for more than a couple of years, as all bubbles end. It's only ever a question of when and how....

The 2011 Microrecession in U.S.-China Trade Data

Last week, the U.S. Census Bureau issued the latest data it collects on the balance of trade of goods and services between the United States and China. The chart below shows what we find when tracking the year-over-year growth in the amount of U.S. imports from China and U.S. exports to China from January 1985 through September 2011, which provides an indication of the relative economic health of both nations.

What we find in the chart above is that the rate of growth of what the U.S. imports from China was very low in September 2011, at what we would describe as being "near-recessionary" values, continuing the pattern we've been observing since June 2011.

This indicates that the economic sluggishness most people perceived during the summer of 2011 was real, because a growing economy would tend to pull in more imports.

But we also see that China's economy is also going through its own slowdown, although it appears to still be growing more strongly than the U.S. economy.

Switching over to our doubling rate charts, we see that U.S. exports have sustainably doubled in value four times since January 1985, and are nearing the fifth doubling line:

We observe that the pattern of U.S. export to China since 2008 is very different from the preceding 23 years - it appears as though U.S. exports to China have begun following a seasonal pattern, with the peak in exports occurring in December.

Meanwhile, we find that China's exports to the United States have been growing at a much slower pace since 2008:

The U.S.' imports from China typically follow a seasonal pattern, with the peak occurring between the months of August through October, which coincides with the stocking of consumer goods for the Christmas shopping season in the United States. Although the value of the goods and services the U.S. imports from China is at near record levels (they hit an all-time high in August 2011), the quantity of goods being imported from China into the U.S. is falling.

So how can the value of what the U.S. imports from China be near its all-time record while the volume of goods being shipped is falling? Easy! It's because the value of the U.S. dollar is falling with respect to the value of China's currency:

To put it bluntly, the falling value of the dollar is making it relatively more expensive to buy imports from China than it was a year ago. And that's why U.S. port traffic is down, and U.S. port employees are working less, even though the U.S. appears to be spending more money on Chinese imports this year as compared to last.

And most paradoxically, President Obama is demanding China do more to allow the U.S. dollar to fall with respect to the Chinese yuan, even though it's clearly already happening and is producing the effects he desires.

But then, it's not like President Obama pays much attention to serious economic matters of any kind, unless they reinforce his mispreconceptions.

Image Credit: The Economist