The U.S. economic data in the first three quarters of 2023 are very impressive, especially in the context of the Federal Reserve’s continued interest rate hikes, which have achieved a series of remarkable policy achievements, including the stock market value continuing to reach record highs and the unemployment rate. continued decline and rapid growth in gross domestic product (GDP). The Biden administration hopes to rely on these achievements to become the “economic miracle worker” in American history. However, if you look deeper, you will find some problems.
The “Color Difference” of the U.S. Economy
Manufacturing is an important pillar of the United States’ emergence as a global economic power, but with the rise of financial capital, it has gradually been marginalized. The financial crisis that broke out in 2008 forced the United States to re-emphasize manufacturing. The Obama administration immediately proposed a “revitalization strategy” and adopted a series of policy measures. After taking office, Biden passed a number of bills to support the revitalization of domestic manufacturing in the United States. Global investment in the United States will be active in 2023, and the U.S. manufacturing industry will usher in the so-called “super cycle.” According to Federal Reserve Economic Data (FRED) statistics, U.S. manufacturing investment increased from US$133.2 billion at the end of 2022 to US$194.3 billion in May 2023. Investment in manufacturing plants increased by 80%, contributing approximately 0.4% to GDP growth in the first half of the year. percentage point. The Biden administration has vigorously promoted this “political achievement”. Biden himself also called himself “closest to workers” and went to Chicago to support the auto workers’ strike, becoming the first sitting president after World War II to personally visit the strike site to support workers.
What is the reality? Under current production conditions, economic growth, especially manufacturing expansion, is usually accompanied by increased electricity consumption. However, in the first half of 2023, the GDP of the United States increased by 2.3% year-on-year, but national electricity consumption fell by 3% year-on-year. This may be because increases in industrial electricity use were offset by declines in residential and commercial electricity use, but the reality is that industrial, commercial and residential electricity use all declined. The “Short-term Energy Outlook” released by the U.S. Energy Information Administration (EIA) in September predicts that U.S. electricity consumption will decline by 1.26% in 2023, with residential electricity consumption falling by 2.69%, commercial electricity consumption falling by 1.8%, and industrial electricity consumption falling by 1.26%. down 1.39%.
Under the manufacturing revitalization strategy vigorously promoted by the Biden administration, manufacturing jobs have basically remained at the level of 13 million since January 2023, only an increase of about 200,000 from the beginning of 2020. The manufacturing industry has entered a “super cycle”, but it has not led to an increase in employment levels. Is the expansion mainly concentrated in high-tech fields with fewer workers? This obviously makes no sense, and is not the goal pursued by “Bidenomics”. After all, what “Bidenomics” hopes to achieve is to revitalize the manufacturing industry throughout the industry chain and create more local jobs. In addition, the U.S. ISM manufacturing index has been below the boom and bust line of 50 since December 2022, and has been in the contraction range for 11 consecutive months. Therefore, has the U.S. manufacturing industry really started the so-called “super cycle”? This is rather doubtful.
Data from manufacturing powerhouse Texas also reflect the problem. Although the data from Texas alone cannot represent the United States, if the United States achieves a “manufacturing revitalization,” Texas will definitely perform. However, according to the Texas Manufacturing Outlook Survey, Service Industry Outlook Survey and Retail Industry Outlook Survey released at the end of August 2023, factory activity in the state contracted again that month, with the production index falling to -11.2, which was the lowest level in May 2020. lowest level since last month. Other indicators are also declining: the new orders index continues to be in the negative range, -15.8 in August; the capacity utilization index fell to -3.7; the shipments index fell to -15.8; the capital expenditure index fell to -8.6, the highest level in three years New low.
Logistics data also does not support the conclusion of rapid economic recovery. Well-known American investor Cathie Wood (founder, CEO and chief investment officer of ARK Invest) recently expressed doubts. She used UPS revenue data for comparison and found that under the premise that the relative market share of several large express delivery companies remained basically unchanged, UPS’s average daily express delivery volume declined, which meant that the overall express delivery market was shrinking. FedEx Group (FedEx) also predicts that the company’s national logistics volume will decline by 25% year-on-year in 2023.
Then there’s the employment data. The U.S. technology industry has been undergoing significant layoffs since the beginning of 2023, with large companies such as Google, Facebook, Walmart, and Amazon all laying off employees. Despite this, U.S. employment data still shows a surprisingly good trend, with the unemployment rate continuing to fall and even hitting the lowest record in more than 50 years. At the beginning of October, the United States released two sets of employment data with obvious differences: data from the Bureau of Labor Statistics showed that “large non-farm payrolls” were newly added in September (Note: U.S. non-farm payroll data are divided into “big” and “small”. Generally speaking, The “non-agricultural” refers to “large non-agricultural”, which is released by the Bureau of Labor Statistics of the Department of Labor. Previously, the U.S. Automatic Data Processing Company also released data, that is, “small non-agricultural”) employment was 336,000, far exceeding market expectations of 170,000 people. However, the number of “small non-agricultural” employment announced by the Automatic Data Processing Company in September only increased by 89,000, which was far lower than market expectations of 153,000. The difference between the two sets of data is so obvious, which is very abnormal. Mark Zandi, chief economist at Moody’s Analytics, believes actual monthly job growth may only be between 150,000 and 200,000, well below the official figure of nearly 300,000. The minutes of the June Fed meeting showed that some Fed officials also began to express doubts about the strong growth in non-farm payrolls, believing that it may exaggerate the prosperity of the labor market.
Why does “color difference” occur?
Regarding the possible inconsistencies between economic data and actual conditions, some can be explained by errors in statistical methods, while others cannot.
The first explanation is that there are “errors” in statistical methods. Take employment statistics as an example. The employment demographics defined by the International Labor Organization are based on the number of jobs. This is also the statistical method for non-agricultural employment data in the United States. For example, a worker who works 35 hours a week is considered a “full-time worker”. Even though they may be working multiple part-time jobs at the same time, they are only counted as one employed person. The statistical caliber of the unemployment rate is based on the total population and needs to take into account workers’ willingness to work. Therefore, those who are unwilling to work or unable to work due to physical reasons are generally not included in unemployment data. Data from the Brookings Institution in the United States in 2022 shows that due to the “sequelae of COVID-19,” approximately 2 million to 4 million workers are unable to continue working. Since 2023, U.S. officials have significantly lowered previously released employment data many times – the first data released are usually particularly good, and then the Federal Reserve raises interest rates, and then U.S. officials will make one or two “downward” revisions. If this kind of operation occurs occasionally, it can still be understood as “statistical error”, but if it occurs multiple times, it means either there are serious problems with the statistical method, or it is a “manipulation” aimed at “guiding” the market and “managing” expectations.
The second explanation is to falsely report data to obtain government subsidies. It cannot be ruled out that some companies, in order to seek short-term profits, use the banner of “revitalizing manufacturing” to obtain federal subsidies, but these funds are rarely invested in real manufacturing development.
The third explanation is that there is a “secret grand strategy” intended to cover up the deep-seated problems of the economy, lure more capital to flow into the United States, and use capital account surpluses to offset current account losses. Looking back at history, every huge appreciation of the U.S. dollar has been accompanied by the plundering of the wealth of other countries. However, the wealth of small countries is increasingly unable to satisfy the appetite of the United States, so they have aimed their “financial war” at big countries – as the Federal Reserve continues Under the policy of raising interest rates, the overseas dollar debt pressure of Chinese real estate companies has increased significantly, and bears, short sellers, short sellers, and hollowers are rushing to appear.
Trends to watch
The contradictions in economic data obscure the truth about the U.S. economy, which will also fascinate the creators of the data contradictions, preventing them from understanding the seriousness of the problem and taking appropriate macroeconomic control measures. Given that the real situation may not be as optimistic as the data suggests, the following trends in the U.S. economy are worth paying attention to.
First, the revitalization momentum of the manufacturing industry has slowed down. Over the past year or so, foreign investment in the US computer and electronics industry has continued to grow, rising from US$170 million in 2021 to US$54 billion, accounting for 66% of the total new global foreign direct investment (FDI) in 2022. The sustainability of this trend is questionable. If the government reduces support, there is great uncertainty about whether the domestic manufacturing industry in the United States can achieve independent recovery. A report released by the White House Economic Council in August 2023 shows that the growth of manufacturing investment is not entirely due to the influx of new capital, but more of the reallocation of funds from other fields. It is government tax incentives and policy support that “induces” investment Shift from other fields to manufacturing. In the future, if the U.S. government continues to provide financial support to the manufacturing industry, it will crowd out more investment in other areas, thus having an adverse impact on the overall economy.
Second, financial markets adjust downward. If the Federal Reserve maintains a “tight” monetary policy, it may cause financial markets to lose confidence and investors to withdraw, triggering violent fluctuations. From the beginning of 2023 to August 9, the Nasdaq index rose by 57%, of which the top ten stocks by market value contributed 91% of the increase, and a large number of companies with a market value of less than US$2 billion (3,079 in total) The performance was weak, contributing only 1% increase. As of early July, the total market value of the “Seven Sisters” (Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, and Tesla) in the S&P 500 Index has risen sharply, reaching US$11 trillion, accounting for nearly four quarters of the market value of the S&P 500. One-third, equivalent to three German GDPs. However, the total market value of the other 493 companies in the S&P 500 index barely increased. Technology stocks are more sensitive to interest rates. High interest rates for a long time will put downward pressure on technology stocks, and a sharp decline in technology stock prices may trigger an “avalanche” in the U.S. financial market. If so, the U.S. economy may collapse as early as 2023. The growth rate dropped sharply in the fourth quarter.
Third, the real estate market is turbulent. The real estate market is also extremely sensitive to interest rate levels. Data shows that the current vacancy rate of office commercial real estate in the United States is significantly higher than that of industrial and logistics real estate. The Federal Reserve’s continued tightening of monetary policy has further increased financing costs for the real estate industry. Low-liquid assets such as commercial real estate are facing greater revaluation pressure. Investors’ profitability has deteriorated and default risks have increased. The boom cycle of the U.S. real estate market may be terminated by high market interest rates, or may first manifest itself in commercial real estate, followed by a “domino” chain reaction in the real estate market. The fall in house prices will be followed by a reduction in consumer spending and a decline in the quality of bank assets.
In short, to determine what the fundamentals of the U.S. economy are and whether it can continue to attract international capital inflows, we cannot just look at official U.S. data. Investors will also observe it from the perspectives of geopolitical games, military conflict risks, etc., and through a variety of micro-economic indicators. Channels to feel and measure the “temperature difference” between official data and actual conditions, and then make their own prudent judgments and decisions.