click on chart for sharper image
The chart is courtesy of my friend Tim Wallace.
The trends tell two distinct stories. In nominal terms note the housing boom-bust story. During the recession, shipments plunged all the way back to 1997 levels and have since “recovered” to 2005 levels.
In real (inflation-adjusted) terms, shipments fell off the scale to pre-1994 levels and in spite of a big rally, shipments are still below 1994 levels.
Those looking to bash China will note that the US and China signed an agreement for China to enter the World Trade Organization (WTO) right at the inflation-adjusted peak in durable goods shipments.
However, China did not join the WTO for another two years and besides, correlation does not imply causation (although other evidence such as trade deficits does suggest a relation).
Regardless of whether you see falling prices as good or bad, China has been a deflationary force when it comes to manufactured goods. That situation is unlikely to change and it is stirring up protectionist sentiment in Congress and the administration.
Trade wars are not a good thing.
Mike “Mish” Shedlock