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The second official read on U.S. economic growth for this third quarter of this year, released by Washington last month, showed such marginal change from the advance report – and so paled in importance to other developments (chiefly, faster U.S. inflation) – that I didn’t post my usual analysis of the trade highlights.

This morning, the final (for now) numbers came in, and the results once more underscore how thoroughly the CCP Virus and official mitigation efforts (like lockdowns), voluntary behavior changes, and resulting supply chain bottlenecks keep distorting the economy.

And remember: These statistics on changes in the country’s gross domestic product (GDP) after adjusting for inflation all predate the arrival stateside of the highly infectious Omicron strain of the virus.

More specifically, it’s now clear that the third quarter saw a widening of the U.S. trade deficit despite relatively slow national growth rate (2.28 percent in real terms at annual rates), in contrast to the stabilization of the trade deficit during a second quarter of much stronger (6.56 percent) growth. That’s exactly the opposite of what almost always happens, since faster U.S. economic expansion tends to pull in more goods and services from abroad on net.

In addition, these latest after-inflation U.S. trade figures make clearer than ever that much of the virus-related damage to the nation’s trade flows is concentrated on the services side.

So let’s begin with services trade. The United States has long run an inflation-adjusted surplus in these sectors, and the surplus continued in the third quarter of this year. But at $107.6 million, it was the smallest since the first quarter of 2007 ($106.1 million). Moreover, the surplus shrank all the way from its $152.4 million second quarter level.

That’s a deterioration of just under 30 percent – which is not only the most dramatic narrowing of all time (in a data series that began in 2002), but the most dramatic narrowing by a huge margin. The runner up? The 17.62 percent fall-off between the third and fourth quarters of 2004 (17.62 percent), when the absolute totals were much smaller, and therefore big percentage changes much easier to generate.

Most of this deterioration came on the services imports side. Between the second and third quarters, they jumped by 7.80 percent, to $492.2 million. That rate was the fastest since the 8.30 percent increase in the fourth quarter of last year. Services exports were off sequentially by 1.51 percent, to just under $600 million.

As for the other figures, the combined inflation-adjusted goods and services trade deficit hit $1.3166 trillion annualized in the third quarter, still the fifth straight quarterly record, and an increase of 5.79 percent over the second quarter’s $1.2445 trillion.

That growth rate was much higher than the 1.50 percent between the first and second quarters, but remained the second lowest of the pandemic era.

Significantly, though, that after-inflation trade deficit increase was enough to cut overall third quarter economic growth by a sizable 1.26 percentage points. That’s seven times deeper than the 0.18 percentage point reduction in the second quarter, and means that, had the trade gap remained the same, third quarter real growth would have been 3.54 percent annualized – or 55.26 percent stronger.

In fact, on a relative basis, that was the biggest trade hit to U.S. economic expansion since the fourth quarter of 2018, when the gap’s widening knocked 0.51 percentage points off the feeble 0.89 percent annualized real growth rate.

And in another gloomy worst-ever result, the real trade defiicit as a share of the economy hit 6.76 percent – eclipsing the old first quarter record of 6.43 percent.

The third quarter’s goods deficit of $1.4215 trillion annualized was also just modestly (1.43 percent) higher than the second quarter’s $1.4014 trillion. But it, too, was a fifth straight all-time quarterly high.

Total price-adjusted exports dropped by 1.35 percent sequentially in the third quarter, to $2.2730 trillion annualized. The decrease was the biggest since the 20.44 percent nosedive between the first and second quarters of 2020, when the virus first began distorting trade and the entire economy.

Combined goods and services imports only rose by 1.15 percent, to $3.5896 trillion at annual rates – the best performance in this category since the second quarter of 2020 as well, when they sank 17.24 percent. But the absolute import figure still represented the third straight monthly record.

Constant dollar goods exports sagged during the third quarter, too – by 1.29 percent seqentially – to $1.7013 trillion annualized, while goods imports dipped fractionally from the second quarter’s record $3.1255 trillion annualized to $3.1228 trillion.

With strong GDP growth expected for the fourth quarter of this year, the real trade deficit seems sure to keep extending further into record territory. Unless the virus-distorted economy throws observers yet another curve ball?

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