Today’s final government-issued revision of America’s economic growth performance made me think of the current Staples ad campaign.  But rather than “Wow! That’s a really low price!” the only appropriate reaction is “Wow!  That’s a really lousy report!”  And it’s something President Obama really should read on his way up to Toronto for the weekend summit of the G-20 – the world’s 20 biggest economies.

The headline figure was bad enough – inflation-adjusted gross domestic product (GDP) growth for the first quarter of this year was really 2.7 percent at an annualized rate, not the 3.0 percent previously estimated or the 3.2 percent figure published in the first estimate back in late April.  This spotlights what’s really worrisome about the American economy and the administration’s recovery strategy – it’s not that after an estimated $12 trillion of government stimulus, unemployment remains at stratospheric levels.  That’s the symptom.  It’s that the growth bang per buck of this borrowed federal money – the growth needed to create sustainable private sector jobs to begin with –  has been pathetic.

And here’s the G-20 tie-in – lots of this dismal performance stems directly or indirectly from America’s mismanaged international trade policies.  The nation’s trade flows subtracted 0.82 percentage points from growth in the first quarter.  The previous estimate was 0.66 percentage points.  

In other words, America’s trade performance is reducing the nation’s growth and undermining its prosperity, not expanding it.  The numbers reveal the enormous amounts of stimulus benefits that literally are leaking overseas, to spur growth and job creation abroad.  Indeed, this current 0.82 percent drag on growth is more than three times bigger than the much better-publicized drag currently being exerted by the moribund housing sector, and nearly twice the even better-publicized drag being exerted by increasingly insolvent state and local governments – which, unlike Washington, can’t print money.

The new economic figures should be teaching President Obama and his economic team another crucial lesson – their goal of doubling exports per se won’t create a single penny’s worth of new growth or a single new job.  Nor will the almost universally supported objective of “trade expansion.”  Only increasing net exports – i.e., increasing exports faster than imports, and thus reducing America’s chronic trade deficit – can accomplish those goals.

According to the previous GDP estimate, exports added 0.82 percentage points to growth in the first quarter, while imports subtracted 1.48 points.  The final figure released this morning pegs the export contribution to growth at 1.27 percentage points – more than the previous estimate.  But imports subtracted a much greater 2.09 percentage points – also more than the previous estimate.  So despite both the export growth and trade expansion of the first quarter, trade’s effect on the economy was negative – exactly the opposite of what’s needed.

The imperative of growing by reducing the trade deficit becomes especially clear after examining some of the other GDP data.  The increase in personal consumption added 2.13 percentage points to growth rather than the 2.42 percent previously estimated.  That’s good for the country’s long-term economic health, because over-consumption (and the consequent under-production) ultimately caused the financial crisis and deep recession.  But the way the GDP is calculated, it’s bad for near-term growth.  And even with this dip, consumption stands at 70.69 percent of economic activity.  If that figure holds up for the year, it would exceed the levels hit at the height of the bubble!

Will America’s businesses – and especially its immensely profitable big businesses – fill the growth gap?  Doubtful.  The previous GDP estimate put business spending’s contribution to growth at 0.29 percentage points.  This final revision: 0.21 percentage points.  Inventory restocking by businesses continued, adding 1.88 percentage points to growth instead of the 1.65 percentage points previously thought.  But this rate was only half that in the fourth quarter of 2009, and will continue slowing now that the recovery from the early 2009 bust is finishing up.  The obvious implication:  For all the demand ostensibly being created for American products abroad, it’s not nearly enough to replace the final demand still being lost at home.  And too much of the latter is being filled by imports anyway.

So the President faces a clear choice in Toronto:  He can stay on his current course, and continue believing despite all the evidence that prosperity can be created by the equivalent of pouring ever more water into a massively punctured vessel.  Or he can change a losing game, and start plugging the leak with trade policies aimed at reducing America's massive deficits.


 

Lots of media attention today focused on a Chinese central bank announcement promising to "enhance the renminbi exchange-rate flexibility."  The implication -- Beijing, at some point, is going to abandon the dollar peg it admits adopting for its currency two years ago in order to prop up exports, and resume permitting the very gradual appreciation versus the dollar that began in 2005.

At this point, however, a commitment to move to a genuine float -- a condition in which the currency would be traded freely -- is nowhere to be seen.  Rather, the People's Bank of China will maintain control over the value of the yuan, but will use its power to -- again, at some undefined point -- begin nudging it upwards.  In other words, the PBOC is also implicitly stating that it will retain the power to either refreeze the yuan or even nudge it back down if it believes conditions so warrant.  

Of course, at various times, many other countries have tried to influence the value of their currencies.  But given China's long record of maintaining complete ultimate control, and aggressively manipulating the yuan's value to serve Chinese interests, it's clear that this statement represents no significant change in Chinese policy.  Indeed, if the global economy shows further signs of heading into a second dip, we can fully expect Chinese authorities to refreeze or even devalue again.

At the same time, it's important to keep in mind a point that the U.S. Business and Industry Council consistently has made about the inadequacy even of a stated commitment to a float.  If foreign investors start to get nervous about the Chinese economy (and some clearly already are), at some point a float could result in a weaker yuan than is needed to reduce the trade imbalance significantly.      

Such uncertainties are what lie behind our view that imposing tariffs is the only reliable way to reduce the trade deficit enough to rebalance and strengthen the foundations of the U.S. economy and the world economy.  These tariffs would give Washington the advantage of controlling what it can reasonably hope to control -- access to the U.S. market, as opposed to the behavior of a foreign government.  Yet they must be high enough, sweeping enough, and agile enough to slash the deficit and keep it at levels consistent with genuine American and global economic health.  

Tariffs would also enable the U.S. government to offset the effects of whatever shell games Beijing has in mind -- i.e., increasing other forms of protection or subsidization to make up for any losses resulting from a stronger yuan.  Don't forget:  The Chinese have pulled this trick at least twice before -- when they revalued in 2002, and when they held the yuan steady in 1997-1998 (by increasing VAT rebates for exporters).  

The likelihood of shell games, moreover, makes it difficult and probably fruitless to predict that a certain degree of yuan revaluation will produce a certain reduction in the U.S. trade deficit.  The results depend heavily on what other actions China takes, and how effectively the U.S. government responds.  And the effects on the U.S. deficit also depend heavily on what actions foreign governments take in response.

Bottom line:  If President Obama and the Democratic leaders of Congress believe that Chinese statements like the PBOC's latest will significantly help them solve the jobs and growth crisis the country still faces -- much less solve it by the November elections -- they're delusional.  But they've bought pigs in a poke from China before.

 

Judging from the stock market’s reaction, it may be hard to believe that this morning’s latest monthly employment report is worse than it seems at first glance.  But it is.

Thank goodness the media and the markets immediately recognized that 411,000 of the 431,000 jobs created in May (95.36 percent) were temporary government census-worker jobs.  Their appearance obviously says nothing about the economy’s ability or potential to create sustainable employment.  Much more important was the pathetic 41,000 net new positions generated by the private sector – after literally trillions of dollars in government stimulus spending and bailouts!

Unfortunately, however, even these numbers don’t capture the U.S. economy’s full dependence on government life support.  The reason:  The standard definition of “private sector” is too broad.  In particular, it includes two big employers – educational services and health care services – that are so heavily subsidized by government as to substantially compromise their private sector credentials.

If the private and public sectors are more realistically defined, government’s role as an employer increases tremendously.  This morning’s jobs report shows that private sector employment currently stands at 82.40 percent of total nonfarm employment (the government’s proxy for total American employment).  That’s down some from the 83.88 percent figure recorded in May, 2007 – the last pre-recession year.  But it’s actually slightly higher than the May, 1981 level of 82.26 percent.  (1981 is the first year for which all these data are available on the search engine of the historical statistics provided by the U.S.  Bureau of Labor Statistics.)  So what are those Tea Party-ers and similar critics complaining about?

Here’s what.  Adding in the health and educational services jobs numbers brings last month’s private sector share of nonfarm employment to 67.48 percent.  That’s a good deal lower than the pre-recession figure of 70.61 percent in May, 2007.  And it’s considerably lower than the 74.23 percent figure for May, 1981.  

Another discouraging number:  Even though American manufacturers hired 29,000 more workers in May, manufacturing’s share of total nonfarm employment fell to 8.93 percent.  That’s down from 10.13 percent in pre-recession May, 2007, and much more than 50 percent below the May, 1981 level of 20.56 percent.  All told, this is how you reflate a burst bubble, not how you restore real health to the American economy.
 

One approaching casualty of Europe’s debt crisis may be – and should be – some of the more seductive talking points still being made about NAFTA by many of its opponents and most of its supporters alike.

As opponents have long argued, supporters were always completely naive to believe that simply eliminating most trade and investment barriers would ensure smooth economic integration between the two countries.  Melding high and low-wage countries together is much more complicated.  

Moreover, the buyers’ remorse that’s clearly permeating the European Union because it admitted countries clearly not ready for membership will greatly affect plans for deeper integration being quietly discussed behind too many closed doors in Washington, Mexico City, and Ottawa.  Specifically, it will keep them deep on the back burner for the foreseeable future.

Conceivably, the trilateral conferees who meet regularly under the auspices of the Security and Prosperity Partnership of North America (SPP) don’t yet realize Mexico's governance problems dwarf those in Greece and the rest of southern Europe.  But Congress will surely put two and two together if integration blueprints and proposals become public.

At the same time, the EU mess has scuttled a major counter-argument made by many of NAFTA’s progressive critics.  How often have they insisted that the way to deal with the inevitable complications of rich-poor integration is showering Mexico with foreign aid aimed at lifting its labor and regulatory standards to U.S. levels, and building up border-area infrastructure?  The critics’ main evidence?  The success such programs allegedly achieved with Greece and the EU’s other poorer members.
  
So here’s hoping that both NAFTA’s supporters and progressive critics will abandon their illusions and support the only strategy truly capable of giving Mexico the economic boost it still desperately needs – without undermining U.S. economic interests.  The strategy:  giving Mexican-made, and perhaps other hemispheric, products trade breaks that discriminate against exports from China and other mercantilist competitors outside the hemisphere.  

Yes, this proposal probably violates World Trade Organization rules.  More accurately, a WTO’s largely non-Western Hemisphere membership will undoubtedly concoct a pseudo-legal rationale for striking it down.  (Unlike in the U.S. legal system, WTO rules and their interpretation are regularly contorted to serve the majority's political interests.)  But even in past years of fake U.S. and global prosperity, American trade policy needed to make more of the kinds of tough decisions represented by the hard regionalism suggested above.  Today, in times of ongoing crisis, such strategic vision and resolve are more important than ever.



 

…It’s often fun seeing Washington Post columnist Dana Milbank puncture pretension and hypocrisy in the nation’s capitol, but his “everything is just politics” worldview can blow him far off course, especially when the subject is the economy.  

So Milbank performed a useful service in his May 25 piece “Summers Needs to Take Explaining Econ 101” when he noted how in a recent speech the President’s most powerful economic advisor referred to the economic crisis and recession as “a fluctuation.”  “Millions of Americans are out of work,” Milbank exclaimed, “the budget deficit is in the trillions and Europe is flirting with economic collapse.”  

Yet right after blasting Summers for this euphemism, the author opined that “There's building evidence that he's pursuing the right economic policy,” and simply faulted the administration overall for ineptitude “at explaining it.”  The undoubted explanation? Milbank found this spin-centric analysis much more interesting than presenting actual evidence for his thumbs-up verdict on Obama-nomics – especially since Washington’s chattering classes have already decided that recovery is well underway.  And clearly grading the administration’s media P.R. skills was much easier than examining whether there’s even the slightest relationship between twitches of activity in the economic data and those trillion-dollar deficits.    
  
…Speaking of rebubble-ization, hats off to USA Today’s Dennis Cauchon.  On May 24, he reported the mind-boggling fact that, as of the first quarter of this year, “A record-low 41.9% of the nation's personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.”  The rest came from “government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs.”  Talk about an unsustainable trend!  This is a statistic I’ll start following very closely.

…I keep waiting for Chinese to start denouncing debt-ridden Europe’s profligacy the way they berated America’s bloated debts last year.  Instead, the euro keeps sinking against the dollar – and against the Chinese yuan, which is pegged to the greenback.  This shift is bound to shrink China’s trade surpluses with the Euro-zone, which like China’s surpluses with the United States are critical to maintaining employment levels and thus political stability.  But last week, the Chinese government went out of its way last week officially to deny speculation that it would soon dump some of its euro-denominated holdings.  

Not that the Chinese, of course – or any other creditors – are doing the Europeans any favors by continuing to subsidize their super-sized welfare states.  By the same token, panda-huggers to the contrary, they're not doing us any favors by propping up U.S. consumption, either.    

 

Here’s the bottom line for the first revision to the gross domestic product (GDP) figures for the first quarter of this year just released by the government this morning:  In addition to inflation-adjusted growth having been slower during this period than first thought (three percent on an annual basis versus 3.2 percent), the re-bubble-ization of the U.S. economy I blogged about recently (http://americaneconomicalert.org/blogger_home.asp?Prod_ID=37#3499)
is proceeding slightly faster than indicated by last month's advance estimate.

Personal consumption was pegged slightly higher as a share of the overall economy than originally reported: 70.716 percent versus 70.712 percent.  Just ten years ago, personal consumption represented only 67.77 percent of the economy.  Moreover, personal consumption plus home-building – the toxic combination that really inflated the last decade’s bubble – was also slightly higher as a share of the overall economy (73.38 percent) than the advance estimate indicated (73.37 percent).  America is not yet back at the 75.91 percent peak hit in 2005, but it’s getting closer once again.

The advance GDP numbers reported a somewhat encouraging increase in overall business spending of 4.1 percent over the fourth quarter of last year.  But the new rate of increase is a much less encouraging 3.1 percent.  Moreover, much as with original first quarter estimate, the new numbers show that a post-crash inventory restocking that is almost universally considered unsustainable contributed orders of magnitude more to overall growth than non-inventory-related business investment.  The new 5.69 percent is  way down from the previously reported ratio of 15.70 percent, but still incredibly high.

Finally, the new figures showed that the U.S. trade deficit subtracted 0.66 percentage points from economic growth on an annualized basis in the first quarter, not 0.61 percent as first reported.  

In other words, if America’s trade flows were simply balanced, first-quarter economic growth would have been 3.66 percent, not three percent – or 22 percent faster!  According to the final fourth quarter GDP figures, exports contributed 2.36 percentage points to that period’s 5.6 percent overall annualized growth rate – just over 42 percent of the total.  Imports, however, subtracted 2.09 percentage points from American growth.  The latest first-quarter numbers show that the export contribution to growth was down to 27.33 percent.  Yet the import subtraction from growth was 1.48 percentage points – nearly half the new overall three percent growth figure.    

This first revision to the first-quarter GDP figures (the third and final -- for now -- figures will come out June 25) sure puts in a funny new light the enthusiasm for new trade deals voiced by globalization cheerleaders ranging from President Obama to the U.S. Chamber of Commerce.  For the last two decades, earlier versions of these trade agreements have helped push the country over the debt cliff.  Why do such cheerleaders -- who agree on little else --  suppose that “this time, it will be different”?




 

Let’s say you don’t buy the USBIC view that the just-concluded U.S.-China Strategic and Economic Dialogue session in Beijing was not simply a cynical exercise in public relations.  Let’s say you really believe that Team Obama’s aim was to stop China’s currency manipulation and other trade cheating, and thereby move closer to an urgently needed rebalancing of the Chinese, U.S., and global economies.  Let’s say you’re convinced that the furthest thing from the U.S. delegation’s mind was fooling the American people into thinking that China’s economic challenge is being met -- all the while ensuring the survival of the outsourcing status quo in U.S.-China economic relations.

In that case, you’d find it hard to describe the American performance in Beijing as anything but breathtakingly incompetent.  Think of Treasury Secretary Timothy Geithner’s approach in particular.  Since before Treasury balked at publishing its biannual Congressionally-mandated report on currency manipulation for fear of raising Chinese hackles, Geithner has insisted that China would revalue voluntarily because Beijing’s interests so required.

Reasonable enough, though hardly self-evident.  But if so, then why bring up the currency issue at these talks at all?  Why not simply trust in China to do the right thing in time to make a difference?  At various points, Geithner has suggested that diplomatically couched U.S. input could help encourage Chinese progress, and even reenforce a faction of “revaluers” supposedly struggling for influence against stand-patters.  But does he seriously think the Chinese are ready to take advice from American officials in any form?  What could they teach Beijing?  How to inflate and reflate asset bubbles?  How to print money at a record pace?  

Then there was Geithner’s agreement that the timing of any yuan revaluation is “of course China’s choice.”  The problem is that China’s choices so far have been damaging the U.S. and global economies, and as a senior representative of a major power, Geithner needs to understand his country’s leverage and act from an appropriate position of strength.  His recent position does nothing less than contract out vital elements of U.S. economic policymaking to the Chinese.

But maybe the most seemingly bone-headed move Geithner & Co. made was encouraging China to apply to join the World Trade Organization’s agreement on government procurement.  So far, Beijing has snubbed this arrangement, in which signatory governments promise to open their public spending markets to each other – but have no similar obligations toward non-signatories.   And China’s standoffishness has been a big plus for the U.S. economy, for it’s permitted the Buy American provisions of the Obama stimulus package to discriminate against Chinese goods.  

Geithner and his colleagues apparently expect Chinese entry into the agreement to open up China’s enormous public procurement market to U.S. exports.  They need a reality check.  China would game the system like many other signatories – indeed, how it has gamed the WTO itself.  Beijing would “promise America anything” to get into the agreement and then ignore these commitments while pocketing the benefits – which would come largely courtesy of Washington’s decision to abide scrupulously by the letter and spirit of the law.  It's impossible to imagine a better formula for supercharging the U.S. trade deficit, continuing to weaken U.S. finances, and further destabilizing the world economy.  

Of course, Geithner is anything but incompetent.  Common to all his claims of progress and rationalizations for dithering is the effectiveness with which they protect the interests of outsourcing multinational companies and importing businesses.  For the U.S.-China trade status quo greatly benefits them by preserving their ability to sell to the U.S. market from a Chinese production base that is not only super low-cost and regulation-light, but lavishly subsidized.  

And as for the domestic businesses and their employees who make up the American economy’s productive core?  At this rate, the Strategic and Economic Dialogue won’t be thinking about their interests until at least the next U.S. presidential election cycle.
 

...The more serious Europe’s debt troubles become, the lower the already minuscule odds that President Obama can meet his announced goal of doubling U.S. exports in five years.  This holds even on the virtually pointless gross basis he’s still talking about, rather than the net basis which is the only way to promote U.S. economic growth by changing trade flows.  

Nor should anyone be assured by the European Union finance ministers’ May 18 promise that the continent would overcome its woes without widespread domestic austerity programs.  In fact, coupled with the Euro’s nosedive, that pledge makes it sound like the EU will be counting for growth on a major export push of its own.

...Speaking of doubling U.S. exports, the Federal Reserve’s latest monthly industrial production report just showed that America’s domestic manufacturing capacity shrunk again in April.  The 0.09 percent falloff sounds trivial, but it continues a 17-month string of declines in this too-little watched measure of domestic manufacturing’s health, and it brings the total reduction since November, 2008, to 1.74 percent.  

This capacity reduction has not only set a new all-time record for duration, but it represents only the second stretch since the end of World War II when capacity has ever shrunk.  (The first time was immediately after the 2001 recession.)  Good luck, Mr. President, wringing an export doubling out of an ever smaller national manufacturing base.    

...Remember how so many of Washington’s strategic poobahs have warned that strong unilateral U.S. responses to China’s currency manipulation would jeopardize all the help Beijing is giving Washington in containing North Korea?  Those warnings are looking pretty silly in the wake of North Korean leader Kim Jong-il’s visit to China earlier this month.  

Kim arrived in Beijing as evidence kept mounting that a North Korean torpedo attack was responsible for the sinking of a South Korean warship in March.  Kim left Beijing with Chinese promises of 100,000 tons of food and $100 million in other aid for his country’s crippled economy.  That’ll show him!





















































 

How I wish Senators John Kerry and Richard Lugar had attended the Manufacturing Leadership Summit in Palm Beach, Fla. last week with me.  Why?  Because these current and former Chairmen of the Senate Foreign Relations Committee might have finally learned something useful about globalization and international trade.  And they might not have sent a letter May 10 to President Obama urging him to submit the proposed U.S.-Korea free trade agreement to Congress “as soon as possible.”

Although acknowledging that important issues remained unresolved, Kerry and Lugar insisted that the Korea agreement “merits our prompt consideration” mainly because it would “create thousands of well-paying jobs and help generate billions in wealth for both countries.”

It’s easy to see why Kerry and Lugar think Korea would benefit.  Seoul, after all, has traded (meaning “exported”) its way from abject poverty to first world-level prosperity in only a few decades.  Other than blind faith, though, it’s hard to imagine why they expect the United States would benefit, given how America’s trade flows have sunk the country into almost fathomless debt.  

But despite their almost unswerving support for the policies responsible for U.S. trade deficits and debts, even True Believers like Kerry and Lugar may have reconsidered their stance on the Korea deal if they saw the Palm Beach presentation by Luke Oh.

Oh runs the Korean conglomerate Hyundai Systems’ U.S. affiliate, and spoke mainly about a new “next generation,” allegedly incredibly green integrated mill that Hyundai Steel is building in Dangjin, Korea.  Technically, the new facility seems dazzling, and Hyundai of course touts it as a model for the industry.  

But the most important point of the session was Oh’s remark – made offhandedly – that building a world class steel industry was a Korean government priority in part because the nation sought “manufacturing independence.”  As I pointed out in the subsequent Q&A, those two words said all anyone needed to know about why expanded U.S.-Korea trade will be a total loser for America.  

The U.S. government, after all, not only declines to seek “manufacturing independence” but in fact  seeks exactly the opposite goal:  manufacturing interdependence.  Since the end of World War II, American leaders have striven mightily to create a world trade system in which objective market forces overwhelmingly decide which countries dominate global production of which products.  And if these forces dictate that few of these products should be made in the United States, not to worry.  We’ll surely be able to get however much we need, and successfully make some other product – or ramp up in services.

The only possible meaning of “manufacturing independence,” as Oh presented the concept, is that the Korean government has no intention of becoming or remaining dependent on foreign sources of any industrial product for a moment longer than absolutely necessary.  Seoul wants to maximize its industrial self-sufficiency.

None of this should surprise anyone who’s followed international economics even casually – and certainly not Kerry or Lugar.  Korea has long been one of the most protectionist countries in the world.   But the full implications for U.S. trade policy are not remotely recognized.   Although each calls itself “capitalist,” the two countries have create completely different systems and seek two completely different international economic goals.  

In the abstract, neither system or goal is inherently good or bad.  And countries of course have a sovereign right to choose between them.  But decision-makers like Kerry and Lugar don’t do their jobs “in the abstract.”  At least, voters should hope not.  And in reality, when a country like the United States, which views a domestic manufacturing complex with indifference, trades extensively with a country actively seeking to expand its manufacturing, you can bet that the latter will achieve its goal – if only because the former is ideologically uninclined to put up resistance.  

All of which would mean little if indifference to manufacturing was indeed justified.  But as the U.S. Business and Industry Council keeps emphasizing, the relative decline of U.S. domestic manufacturing has left it too small to perform its traditional function of generating the new wealth needed to provide affluence for all the rest of the economy.  Preserving the orthodoxy of indifference -- along with the determination to maintain trade-policy-as-usual with the numerous other U.S. trade competitors that also believe in "manufacturing independence" -- meant that the only other way to maintain national affluence was to borrow recklessly. After nearly three years of financial crisis and recession, it should be obvious what a disaster these decisions have been.  

Yet none of this seems even close to obvious to Kerry or Lugar, even though they no doubt read and travel widely – including to the other major Asian countries just as devoted to “manufacturing independence” as Korea – and even though each has a large, well-paid staff tasked with keeping them informed.

So these two Senate veterans, each of whom fancies himself a world affair expert, keep writing cliched drivel like the May 10 letter on the Korea trade deal.  Washington still has no policy to revive domestic manufacturing to the needed dimensions, and rarely even pays lip service to this goal.  And for all their professed fears about revived American protectionism, the Koreans and their fellow foreign mercantilists apparently are so sure that Washington will cling to the trade and globalization status quo that they’re getting comfortable openly airing their industrial ambitions – and implicitly all the economic and non-economic benefits they produce.  No wonder America keeps getting more and more broke by the minute.
 

President Obama keeps saying that America can’t go back to its pre-crisis delusions about spending and borrowing its way to prosperity.  But the government’s latest figures on the gross domestic product and its growth show that that’s exactly where we’re heading.

The biggest warning sign – in the first quarter of 2010, personal consumption hit 70.71 percent of real (inflation-adjusted) GDP.  That’s up only slightly from the final fourth quarter 2009 level of 70.64 and actually down from the latest peak of 71.32 percent hit in the third quarter.  But it’s still higher than the personal consumption levels from the insanely bubble-ized years of 2005 and 2006 – 69.78 percent and 69.92 percent, respectively.  

Moreover, since the subprime housing bubble’s bursting triggered the current economic/financial crisis, personal consumption has shrunk in only four of the eleven quarters of economic activity that have passed.  

For some context, back in 2000, personal consumption comprised only 67.77 percent of the economy, and had risen to that height only from 66.17 percent in 1990.

Encouragingly, personal consumption plus home-building – the full recipe for modern bubble-ized growth – together made up 73.37 percent of the economy in the first quarter of 2010.  That’s down from 73.87 percent for all of 2009 and the peak of 75.91 percent in 2005.  But literally millions of American families have had to lose their homes or face the prospect to produce this decrease.  

Also somewhat encouragingly, the first quarter of 2010 did see an increase in overall business investment of 4.1 percent over the fourth quarter 2009 figure – faster growth than the overall 3.2 percent real economic expansion.  Nonetheless, nearly 90 percent of this growth stemmed from an inventory swing from modest reductions to modest  increases – continuing a trend of steady restocking from historic lows that no serious observers expect can be sustained much longer without a pickup in employment and incomes.

And overshadowing all these trends is renewed deterioration in America’s international trade accounts.  In early 2009, according to how GDP and GDP changes are calculated, a recession-induced decrease in the trade deficit brought about by nosediving imports was the only positive in the country’s economic picture.  (Of course, according to the same measurement system, the persistence of the deficit meant that trade flows were still reducing the economy’s absolute size at any given moment.)  

In the first quarter of 2010, however, trade subtracted 0.61 percentage points from U.S. growth.  These latest official GDP figures will still be revised twice more.  But if rising trade deficits are indeed back for good, it will be harder than ever to avoid these distressing conclusions:  The nation and especially its leaders have learned nothing from the crisis and ensuing Great Recession, and U.S. economy still can't grow without sinking deeper into debt.