On the face of it, a 3.1% 2019 first-quarter increase in US Gross Domestic Product (GDP) is a pretty impressive performance, especially after a drop in the last quarter of 2018 to a less impressive 2.2% growth rate. Couple that with the best January-through-June stock market performance since 1997 and it is understandable that the Trump administration is making the celebration of a healthy economy the centerpiece of its re-election push. But, as I’ve stressed before, the stock market numbers, GDP growth, and even employment rates are often less than reliable measures of the health of the economy, even less so of the economic status of working people.
But even by market-adulation standards, the 3.1% growth rate is deceptive, masking serious looming issues. A full .56% contribution to the rate comes from inventory build-up, an ominous sign that production is substantially outpacing sales. In addition, the biggest component of 1st-quarter growth was, as usual, consumer spending. But consumer-spending growth retreated by over 50% from the last quarter of 2018.
A big contributor to 1st-quarter growth was fixed nonresidential investments. Business investments recovered somewhat in 2018 after a long investment drought thanks to favorable tax laws, repatriated profits, and the need to counter growing aggregate worker compensation from a tightening labor market. Early in 2018, corporate leaders and economic commentators began to notice and fear the effect upon profits of compensation growth and sluggish global markets.
In an attempt to counter wage pressure, US capitalists accelerated their acquisition of labor-saving capital and intensified the labor process (increased labor exploitation). As a result, for the first time in 32 straight quarters, labor productivity rose in 2018 above the previous years of sub-2% growth (only to falter again in 2019).
While cheerleaders were loudly celebrating a healthy economy, both profit-squeeze and declining demand were eating away at the US economy: in the last quarter of 2018, profits fell .4%; in the first quarter of 2019, the decline increased to 2.6% (BEA).
While the anointed economic “experts” populating most newspapers boasted of prosperity, the serious analysts in capital’s mouthpieces-- The Economist, Bloomberg News, The Financial Times, Barron’s, The Wall Street Journal, etc.-- shuddered. They understood that the decline in profitability-- capital’s engine-- outweighs the cosmetic metrics favored by capital’s Pollyannas.
For some time, the European, Japanese, and Chinese economies have been mired in stagnation or slowing growth, but the US economy has been puttering along against that tide. That “success”-- fueled by tax policy, military spending, and bullying trade policy-- has now run its course.
The important US auto industry declined every month in the first half of 2019 against the same month last year. June sales dropped a stunning 6% against June, 2018. GM plans to close 5 plants and Ford is scheduling a 20% layoff of its European workforce in July.
US existing home sales-- equally economic drivers-- have fallen on an annual basis for 15 months, and homeownership, after two years of improvement, declined in the first quarter of 2019.
Where there are sales, house-flipping has returned with a vengeance to 2006 (pre-crisis) levels at 10.6% of all sales, spurring class and race-busting urban gentrification.
Steel mill closings are part of a US manufacturing-output decline over the first four months of 2019.
On the dominating financial front, US corporate debt at 46% of GDP is the highest on record. The low interest-rate environment existing since the worst days of the crisis has seduced corporations into promiscuous borrowing. The Federal Reserve is caught in a precarious position of trying to restore interest rates to historical levels in an effort to tame borrowing while fearing that higher interest rates will sink over-leveraged corporations. Trump stands on the sidelines screaming for low interest rates to brighten prospects for his immediate political future.
The Fed is warning of risky, highly leveraged corporate debt which rose 20% last year to $1.1 trillion (with falling credit standards). A downturn could devastate this market and spark a financial meltdown.
The low-interest environment has spawned an explosion of global debt: where total debt was 225% of worldwide GDP in 2000, it has reached 325% of total global GDP today. The lowest level of investment-grade bonds now total over $2 trillion.
The heralded burst of international trade that came to be called “globalization” is receding in importance as a factor in the global economy. The period in the 1960-1970s when the WWII “losers,” especially Japan and the Federal Republic of Germany, rose up to compete vigorously with US monopolies managed to nearly double global trade as a percent of world GDP. The percentage of trade to global GDP multiplied again from the mid-1990s until the 2008 crash-- this time, from the development of new logistical technologies and a massive injection of disciplined, skilled, low-wage labor into the global labor market from Asia and Eastern Europe.
The conditions for continued intense trade growth have now been exhausted in the post-crash world. Since 2012, the change in world merchandise trade volume has vacillated between 1 to 5% growth, actually falling into negative territory in the first six months of 2019. Shipping companies have looked to other areas of investment while orders for new ships-- the vessels of global trade-- have sunk to a 15-year low.
Some will blame Trump’s trade policies on the decline in trade, but that confuses cause with effect. Economic nationalism as a policy has gained its hold on sections of the ruling class and desperate voters worldwide because of the failure of the globalist project. Its failure to deliver in the wake of the 2007-8 crash produced a hunger for an alternative. Turning to national interest Über Alles at a time of economic chaos is a capitalist commonplace with many historical precedents. In fact, I projected at the time of the crisis that the collapse would likely generate “centrifugal forces” which have since threatened to break up alliances, trade agreements, international institutions (like the EU), and common policies.
In place of the globalist project, the new nationalists hope to revive the US economy by bullying rival economies to the advantage of their respective corporations and capitalists. In the case of the US, they see deregulated markets as failing to respect US power and dominance. They have cast off the fantasy of market partnership for an economic struggle of winners and losers (with each nationalist regime convinced that it will be a winner).
Make no mistake, the current battles between the globalists and the economic nationalists will generate no authentic champions for working people. Neither Trump and his European cohorts nor the free marketeers defending the old consensus can offer little more than temporary relief from the deeper ills afflicting capitalism.
Apart from tariff policies and other bullying, US oil and gas imperialism is another feature of the new economic nationalism. With US oil production matching or exceeding every other global producer, and with natural gas extraction growing dramatically, the economic nationalists foresee the US now competing successfully for markets. The conventional explanation of the US aggression against oil-producing states must now be retired. The US is no longer solely obsessed with commanding and dominating existing oil producers-- US intervention is not simply about the oil in the way it has been in the past. That is, it is not simply acquiring oil resources that motivates US aggression, but commanding oil markets as well.
Thus, the US is also out to wreck competing oil and gas producers by sanctions, disruptions, and destruction. The US corporations want the markets in order to peddle their own energy resources. The long trail of wrecked, dysfunctional, and economically strangled global oil producers attests to this new motivation and serves US energy corporations well.
I have been writing often of this shift of US imperial design for over two years. Nothing demonstrates the intent of the new energy imperialism as does the Department of Energy’s recent renaming of US natural gas as “Freedom Gas” and the product as “molecules of freedom.” This silly branding is part of the campaign to win Europe and other gas-dependent markets from Russia and Iran/Qatar. Even though US liquified “freedom gas” is 20% more expensive than Russian gas, the Trump administration bullied Germany’s Angela Merkel to agree to two new LNG terminals in Germany. Her admission that LNG from the US would not break even for at least a decade demonstrates the aggressive face of the new US energy imperialism.
US gas producers have stoked anti-Russia sentiment to draw Poland and the Baltic states into their LNG market nexus. US LNG annual exports to Portugal and Spain grew from a tiny base to nearly 20 and 30 billion cubic feet, respectively, between 2016 and 2017.
And US crude oil exports soared after the crisis in the Straits of Hormuz. US oil shipping nearly doubled in the aftermath of the mysterious “attacks” in the Persian Gulf. President Trump underscored the attractiveness of foregoing the Straits and buying from the US. Rather than taking the “dangerous journey,” Japan and PRChina should be reminded that “the US has just become (by far) the largest producer of energy in the world.”
Economic nationalism will not save the US or any other country from the failures of capitalism.
Not surprisingly, Black workers have been hit hardest by the bogus recovery. While all workers have improved their median weekly earnings by 5.3% since the beginning of the recession in 2007, African-American workers have barely gained at all, improving their weekly earnings by only 1.6%.
Neither sanctions, tariffs, and other forms of bullying nor an aggressive imperialist energy policy will counter the contradictions ripening within global capitalism. In November of 2018, I wrote: “Next year will bring stagnation, if not economic decline, for the global as well as the US economy. Inevitably, capitalism will attempt to place the burden of the system’s failure onto the backs of working people.” I stand by that projection.
Neither sanctions, tariffs, and other forms of bullying nor an aggressive imperialist energy policy will counter the contradictions ripening within global capitalism. In November of 2018, I wrote: “Next year will bring stagnation, if not economic decline, for the global as well as the US economy. Inevitably, capitalism will attempt to place the burden of the system’s failure onto the backs of working people.” I stand by that projection.
Greg Godels
zzsblogml@gmail.com
zzsblogml@gmail.com
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