The second estimate of third quarter real growth, which pegged the rate at 3.26 percent annualized, closely resembled last month’s initial read in showing a shrinking inflation-adjusted trade deficit to be a major engine of expansion. According to this morning’s Commerce Department report, trade fueled 0.43 percentage points of second quarter growth – up in absolute terms from its 0.41 percentage point contribution to the initial read’s 2.95 percent annualized growth, but down slightly in relative terms. This performance reflected the constant dollar trade deficit’s quarterly shrinkage from an initially estimated $595.5 billion annualized to $594.4 billion.
This third quarterly decrease – the first such stretch since a period overlapping 2012 and 2013 – brought the after-inflation trade shortfall to its lowest level since the third quarter of 2016 ($557.3 billion annualized). And the rate of decrease in the deficit from the first quarter level (12.52 percent annualized) was the fastest since the 46.14 percent annualized nosedive of the fourth quarter of 2013. Moreover, the new third quarter results continued to mark the first time since a 2012-13 stretch as well that trade has added to growth for three straight quarters. Even better, the pattern of deficit shrinkage – with real exports rising and real imports declining – revealed again that the economy had supplied increased demand from both abroad and at home simultaneously for the first time since the third quarter of 2014.
The new export figures were slightly weaker in general than the initial reads, but still remained at all time quarterly highs in all categories. All import categories showed slightly greater declines from the initial report’s levels. As a result, the quarterly rates of decrease remained at five- and six-year highs.
The price-adjusted trade deficit’s continuing fall also further reduced trade’s drag on real growth during the current recovery – from the 8.18 percent reported last month to 8.11 percent (or $228.1 billion in lost inflation-adjusted growth). In the second quarter, the trade drag was 9.24 percent. The trade drag of the Made in Washington deficit – which tracks flows heavily influenced by U.S. trade policy, decreased from 17.30 percent in the second quarter to 16.32 percent ($459.2 billion in lost real growth).
Here are the trade highlights from this morning’s report on the gross domestic product (GDP):
>The Commerce Department’s second read (of three) on third quarter inflation-adjusted economic growth confirmed last month’s finding that the narrowing of the real trade deficit played a major role in fueling expansion.
>The new figures showed that the trade shortfall’s decline to $594.4 billion at an annual rate contributed 0.43 percentage points to the quarter’s 3.26 percent price-adjusted annualized growth. The first reading – which judged the trade gap to have declined to $595.5 billion – pegged trade’s growth contribution at 0.41 percentage points to a 2.95 percent annualized growth rate.
>Thanks to the $594.4 billion figure (the lowest quarterly constant dollar trade deficit since the $557.3 billion reading in the third quarter of 2016), trade’s new growth-fueling role was its biggest since the fourth quarter of 2013 – when it added 1.29 percentage points to 3.90 percent annualized growth. The initial third quarter GDP data judged the trade contribution to be 0.41 percentage points to 2.95 percent annualized growth – a slightly bigger relative role.
>This morning’s GDP statistics also confirmed that in the third quarter, the real trade deficit fell sequentially for the third straight time. This kind of streak hasn’t been seen since a period starting in the second quarter of 2012 and lasting through the first quarter of 2013.
>In addition, the trade gap’s sequential rate of shrinkage in real terms in the third quarter (12.52 percent annualized) was its fastest since it plummeted by 46.14 percent annualized in the fourth quarter of 2013.
>The new GDP results also showed that the third quarter still marked the first time since the aforementioned 2012-2013 span that trade had generated real growth for three consecutive quarters.
>The pattern of real trade deficit shrinkage also remained encouraging. As with the initial read for the third quarter, the second report showed that the gap narrowed both because exports grew and imports shrank. In other words, the United States was supplying increased demand both at home and abroad simultaneously – the first time it has achieved that objective since the third quarter of 2014.
>Inflation-adjusted exports remained at quarterly records in the third quarter in all major categories, but overall their levels were slightly lower than in the initial read.
>Rather than increasing by a 2.31 percent sequential annual rate to $2.1937 trillion annualized, total exports are now judged to be up by 2.16 percent, to $2.1929 trillion.
>The price-adjusted goods export figure was revised up from an increase of 1.40 percent sequentially at an annual rate to $1.5056 trillion annualized, to an increase of 1.63 percent to $1.5065 trillion.
>But the inflation-adjusted services export results were revised down from a 4.04 percent increase at an annual rate to $689.2 billion, to a 3.17 percent increase to $687.7 billion.
>All import categories, however, showed slightly greater third quarter declines in this morning’s results than initially reported.
>The total imports decrease – the first sequential drop since the first quarter of 2016 (when annualized growth was a mere 0.58 percent) – was judged at 1.07 percent annualized, the fastest such fall-off since the fourth quarter of 2012 (3.82 percent). And the import level itself was revised down from $2.7892 trillion annualized to $2.7873 trillion.
>The inflation-adjusted goods import figures was lowered from $2.2914 trillion annualized to $2.2906 trillion – meaning that the sequential annualized decline was 0.65 percent. That represents the fastest rate since the 4.40 percent rate in the fourth quarter of 2012 – when overall growth was a bare 0.09 percent annualized.
>Real services imports were judged today to have fallen sequentially in the third quarter by 2.97 percent at an annual rate percent rather than 2.17 percent – still the fastest quarterly decrease since the 7.59 percent annualized plunge in the first quarter of 2011. The level of services imports was downgraded from $495.5 billion annualized to $494.5 billion.
>With the real trade deficit shrinking steadily, so is trade’s drag on the current economic recovery.
>The initial read on third quarter GDP pushed it down from 9.24 percent in the second quarter to 8.18 percent. The new data reduce it still further – to 8.11 percent, or $228.1 billion sliced off real growth during this recovery because of the after-inflation trade deficit’s expansion since the last recession ended.
>The growth-killing effects of the Made in Washington trade deficit have been considerably greater – but continue to fall as well.
>This trade deficit and its growth drag can be calculated by removing constant dollar oil trade and services trade from trade figures – two areas where trade liberalization’s impact so far has been modest at best. What’s left are the U.S. trade flows most heavily affected by trade agreements and other Washington policy decisions.
>When the first read on third quarter GDP came out, third quarter figures for the Made in Washington deficit were not available, but the second quarter GDP report revealed a drag of 17.30 percent, or $462.8 billion in real growth lost since the recovery began.
>Today’s GDP report shows that the Made in Washington trade drag is down to 16.32 percent, or $459.2 billion worth of real growth lost since the recovery began, in the middle of 2009.