Due to extenuating circumstances, my usual same-day report on Friday’s gross domestic product (GDP) figures couldn’t come out on the same day. Still, its trade-related aspects are important enough to warrant attention.
Specifically, the government’s first read on inflation-adjusted growth in the third quarter (which will be revised twice more in the next two months) shows that America’s trade performance made its biggest relative contribution to the current expansion in nearly four years. Between July and September, the narrowing of America’s trade deficit accounted for 0.41 percentage points of that quarter’s 2.95 percent real growth at an annual rate. Not since the fourth quarter of 2013, (when it generated 1.29 percentage points out of 3.90 percent annualized after-inflation growth) had trade played such a prominent positive role.
Trade’s real growth contribution also took a distinctive form in the third quarter: For the first time since the third quarter of 2014, the trade addition to inflation-adjusted growth came both through exports rising and imports falling. In other words, the nation was able to supply more demand abroad and at home simultaneously.
Moreover, for the first time since a stretch in 2012 and 2013, trade on net fueled constant-dollar growth for three consecutive quarters. In fact, trade’s growth role has now been positive for five of the last six quarters.
These developments stemmed in part from the real trade deficit’s fall in the third quarter from $613.6 billion annualized to $595.5 billion – its lowest level since the third quarter of 2016 ($557.3 billion).
Further, in percentage terms, this quarter-to-quarter decline in the real trade deficit was the greatest (11.80 percent at an annual rate) since the fourth quarter of 2013 (46.14 percent at an annual rate) – when annualized growth, again, neared four percent.
All three categories of inflation-adjusted U.S. exports tracked in the GDP report hit new quarterly records in the third quarter.
Total after-inflation exports increased 2.31 percent sequentially at an annual rate, to $2.1937 trillion annualized.
Price-adjusted goods exports improved by 1.40 percent sequentially at an annual rate, to $1.5056 trillion annualized.
And constant-dollar services exports were 4.04 percent higher at an annual rate than in the second quarter, to reach $689.2 billion annualized.
All import categories, however, retreated in the third quarter to their second-highest all-time levels after inflation.
Total imports dropped for the first time since the first quarter of 2016 (when annualized growth of 0.58 percent was much lower). Further, the decrease (to $2.7892 trillion annualized) was the fastest (3.20 percent at an annual rate) since the third quarter of 2014 (3.88 percent) – when real growth was considerably faster (5.11 percent annualized).
Inflation-adjusted goods imports also fell quarter-to-quarter (to $2.2914 trillion annualized) for the first time since the first quarter of 2016. Moreover, the decrease (2.04 percent at an annual rate) was the biggest since the third quarter of 2014 (4.28 percent) – when annualized real growth topped five percent.
Constant-dollar services imports fell sequentially for the first time since the third quarter of 2014 as well. In addition, the decrease – 2.17 percent at an annual rate, from $498.2 billion annualized to $495.5 billion annualized – was the biggest since the 7.59 percent annualized nosedive in the first quarter of 2011.
Because of the real trade deficit’s shrinkage, trade’s drag on the recovery shrank as well in the third quarter.
This initial estimate of third quarter real GDP reveals that, since the second quarter of 2009 (when the current economic recovery officially began), the increase in the inflation-adjusted trade deficit has cut the expansion’s cumulative growth by 8.18 percent, or $229.2 billion.
The comparable figures for the first and second quarters were 10.04 percent and 9.24 percent, respectively.
Yet the growth-killing effects of the Made in Washington trade deficit – those U.S. trade flows most heavily affected by trade policy and related decisions – is still much greater. This trade deficit and its growth drag can be calculated by removing oil trade and services trade from trade figures – two areas where trade liberalization’s impact so far has been modest at best.
Third quarter data is not yet available, but as of the second quarter, the post-2009 increase in this trade deficit had cut constant-dollar growth during the current recovery by $462.8 billion, or 17.30 percent.