Tags
{What's Left of) Our Economy, Trade, trade deficit, GDP, exports, gross domestic product, imports, inflation-adjusted growth, goods trade, services trade, real trade deficit, real GDP
The encouraging streaks weren’t broken by much, but they were broken. That’s the main takeaway from the trade figures contained in last week’s official report on U.S. economic growth – the second look at the results for the first quarter of this year.
The first had consisted of three straight quarters of growth in inflation-adjusted terms (the most closely followed figures and those that will be used in this post unless specified otherwise) while the price-adjusted trade deficit shrank.
This streak was encouraging because it signaled that the economy was expanding mainly via saving and producing rather than by borrowing and spending. In other words, growth was high quality and sustainable, rather than bubbly and bound to end badly if it lasted too long.
Further, this version of the streak was the longest since the period between the first and fourth quarters of 2007 – just before the arrival of the Great Recession spurred by the Global Financial Crisis. I know – that timing doesn’t sound great. But that streak and that crisis were preceded by a long period of rapidly ballooning trade shortfalls.
The second winning streak consisted of four straight quarters of declining trade deficits irrespective of economic growth.
According to the latest read on the first quarter’s improvement in the gross domestic product (or GDP – the standard measure of the economy’s size and how it grows or shrinks), growth actually sped up some over the results of the first read (1.27 percent in annualized terms versus 1.06 percent). So that was good. But rather than dipping by 0.23 percent, from the fourth quarter’s $1.2386 trillion at annual rates to $1.2358 trillion, the combined goods and services trade gap widened sequentially by 0.40 percent, to $1.2435 trillion.
Optimists can argue that this overall deficit number remains the lowest since the $1.2309 trillion recorded in the second quarter of 2021. But pessimists could respond that it didn’t take much extra growth to put the deficit on a rising path once again, and that as a result, any acceleration of growth from the first quarter’s sluggish pace could push U.S. trade accounts deeper into the red – resuming the dominant pattern of recent decades that strapped the nation with gigantic deficits to begin with. For the record, I’m leaning (but not by much) toward that pessimistic take, even though a single quarter’s results are anything but definitive.
Because it was bigger than initially reported, the first quarter deficit now stands at 6.14 percent of real GDP – up from the 6.08 percent calculable from that initial release (which had been the lowest such figure since the 6.06 percent from the second quarter of 2021), and interestingly, right back to its fourth quarter level. But this number is still way better than the record 7.47 percent in the first quarter of 2022.
With the first quarter trade gap now worsening slightly from the first GDP read, just as growth has risen slightly faster, its role in fueling that first quarter growth dwindled to literally nothing. The initial first quarter release reported that the sequential decrease in the trade deficit had contributed 0.11 percentage points to 1.06 percent annualized growth. But now, the modest sequential increase in the trade shortfall is reported to have had no effect on the new 1.27 percent annualized growth figure.
Both results, though, were way down from those of the fourth quarter, when a much bigger sequential trade deficit fall-off accounted for 0.42 percentage points of its 2.55 percent annualized growth.
The larger first quarter trade deficit means that it’s now 49.32 percent higher than in the fourth quarter of 2019 – the last full-data quarter before the pandemic arrived stateside in force to roil the economy. The initial first quarter read pegged this increase at 48.39 percent, and as of the fourth quarter, it was 48.73 percent.
Total exports climbed in the first quarter by 1.18 percent in the first quarter, from $2.5796 trillion to a new record $2.6101 trillion. The first quarter result topped the previous all-time high of $2.6041 trillion in the third quarter of last year by 0.23 percent. These overseas sales have now increased by 1.49 percent since that immediately pre-pandemic-y fourth quarter of 2019. As of last year’s fourth quarter, they were a bare 0.30 percent higher.
At least total exports in the first quarter rose even faster (by 1.26 percnt sequentially) than originally estimated (1.18 percent). The new total of $2.6122 trillion annualized was still a new record, nosing out the previous first quarter total of $2.6101 trillion by 0.08 percent. And it beat the previous quarterly all-time high of $2.6041 trillion in last year’s third quarter by 0.31 percent.
As a result, combined goods and services exports are 1.57 percent greater of the immediate pre-pandemic level versus the 1.49 percent calculable from the initial first quarter read and the measly 0.30 percent improvement over the fourth quarter total.
Total imports in the first quarter rose faster than originally reported, too. In that first read, they increased sequentially by 0.73 percent, from $3.8182 trillion at annual rates to $3.8460 trillion. Last week, this sequential gain was revised up to 0.98 percent, for a total of $3.8556 trillion – 0.25 percent higher than that estimated last month.
As a result, combined goods and services imports have now grown by 13.24 percent since that last pre-pandemic full-data quarter total in the fourth quarter of 2019 – higher than the 12.96 percent calculable last month and the 12.14 percent as of the fourth quarter of last year.
The trade shortfall in goods encouragingly kept on decreasing for the fourth straight quarter as of the new first quarter read – a span last matched between the second quarters of 2019 and pandemic-ridden 2020. It also remained the lowest number since the $1.3965 trillion at annual rates of the second quarter of 2021. But the decrease is now judged to be 0.52 percent less than initially judged, with the new number standing at $1.4101 trillion versus $1.4028 trillion. And it’s now up 0.57 percent since the fourth quarter rather than the 1.09 percent calculable previously.
Moreover, these results pushed the goods deficit’s rise since the pandemic began roiling the U.S. economy from 32.21 percent versus the 31.52 percent calculable last month. As of the fourth quarter, this increase was 32.96 percent.
Goods exports came in even better than previously reported. In the first release for the first quarter, they rose sequentially by 3.41 percent, from the fourth quarter’s annualized $1.8468 trillion to a new record $1.9098 trillion. That total surpassed the old record of $1.9010 trillion in the third quarter of 2022 by 0.47 percent.
But the second release boosted that quarterly rise by 0.08 percent. The record total therefore climbed to $1.9113 trillion, and the improvement over the fourth quarter to 3.49 percent. In addition, goods exports are now up by 6.99 percent since the immediately pre-pandemic-y fourth quarter of 2019, versus the 6.90 percent calculable last month.
Goods imports expanded more in the second first quarter GDP read than in the initial, but the rate was much lower than that for goods exports. As opposed to the 0.90 percent sequential increase recorded last month (from $3.2830 trillion annualized in the fourth quarter to $3.3126 trillion), the new mark is now judged to be $3.3214 trillion – 0.27 percent greater than the initial read, and 1.17 percent higher than the fourth quarter total.
These results still represent the first increase in goods imports in three quarters, and have brought the gain since the fourth quarter of 2019 to 16.41 percent versus the 16.11 percent calculable last month.
At the same time, the longstanding surplus in services trade shrank sequentially more in the first quarter than initially reported. As of last month’s release, it had declined by 5.63 percent from the fourth quarter – from $177.7 billion to $167.7 billion. And this drop was the biggest since the 20.94 percent in the second quarter of 2021.
But in the new release, the sequential decrease came in at 5.91 percent (still the biggest pullback since the second quarter of 2021), and the new total was an annualized $167.2 billion – a dip of 0.30 percent from the previously reported first quarter total. So rather than having shriveled by 28.08 percent since the just before the pandemic’s arrival in force in the fourth quarter of 2019, the surplus in this sector – which was hit so hard by CCP Virus and its fallout – is now 29.09 smaller.
The sequential slippage in services exports is now seen as not having been quite so steep as reported in the previous first quarter GDP release. Then, at $721.1 billion at annual rates, it was 1.41 percent below the fourth quarter total of $731.4 billion. Now, the first quarter total is estimated at $721.6 billion – 0.07 percent better than that initial first quarter figure and down 1.36 percent from the fourth quarter level.
Consequently, services exports have drawn to within 8.29 percent of their immediate pre-pandemic total, versus the 8.35 percent shortfall calculable last month.
But rather than having tumbled a bit sequentially in the first quarter, as reported in last month’s release, services imports are now judged to have risen slightly. Last month, these purchases were reported to have been $553.4 billion at annual rates – 0.05 percent below the fourth quarter’s $553.7 billion. Now they’re pegged at $554.4 billion – 0.18 percent above the previous first quarter read and 0.13 percent above that fourth quarter total.
Services imports now have reportedly grown by 0.62 percent since that last full-data pre-pandemic fourth quarter of 2019, versus the 0.44 percent gain recorded last month. As of the fourth quarter of last year, this increase stood at 0.49 percent.
As mentioned at the start, these new trade and GDP results could mean that any speed up in U.S. economic growth could bring about renewed growth of the trade deficit – confirming the end of a streak of continued growth and falling deficits. But with the experts seemingly divided in their second quarter growth forecasts (see, e.g., here) the safest observation for now seems to be that the deficit’s course remains at much the same crossroads as described in my previous trade and GDP post.