The third (and final for now) official read on U.S. economic growth in the fourth quarter of last year and full-year 2022 came in on Thursday, and the trade results strongly resembled those of the first and second reports on the increase in the gross domestic product (GDP): definite progress on reducing the ginormous trade deficit on a quarterly basis, but backsliding on an annual basis.
The one area in which revisions were noteworthy: services trade, which was hit so hard by the CCP Virus and consequent limits on in-person service industries, and which most economists agree is harder to measure than goods trade.
As with my last two posts on the trade highlights of these growth reports, we’ll start with the quarterly figures – and present them in inflation-adjusted annualized terms (those most closely followed by GDP observers) except when otherwise specified.
The new data show that the combined goods and services trade deficit contracted by 2.38 percent sequentially in the fourth quarter – from $1.2688 trillion to $1.2386 trillion. The previous report pegged this shrinkage at 2.40 percent (to $1.2384 trillion). So the latest revision was a slight improvement.
Moreover, these numbers mean that the deficit still fell for the third consecutive quarter – the first such span since the period from the second quarter of 2019 through the second quarter of 2020. And the statistics are still especially heartening since that stretch includes the CCP Virus’ arrival in the United States, which naturally depressed imports and the trade deficit by crushing the entire economy, including of course demand for all goods and services, By contrast, during last year’s third and fourth quarters, the economy expanded.
In fact, that two-quarter stretch of the economy expanding and the trade deficit decreasing was the longest since the span between the second quarter of 2019 and the first quarter of 2020. This combination signals growth relying more on the healthy recipe of investing and producing rather than on the crutch of borrowing and spending.
Moreover, the new fourth quarter level of $1.2386 trillion for the overall trade gap remains the lowest since the $1.2039 trillion recorded in the second quarter of 2021. The only discouraging note: During the second and third quarters of last year, the shortfall declined because exports rose and imports fell – the best of all possible trade flow worlds. During the fourth quarter, however, although both exports and imports retreated.
Also, the combined goods and services deficit is now 48.73 percent larger than in the fourth quarter of 2019 – the last quarter before the pandemic arrived state-side in force and began roiling and distorting economic activity. That’s a bit higher than calculable from last month’s GDP release (47.98 percent) but a sizable improvement over the 52.35 percent growth as of the third quarter.
Because the total trade deficit inched up from the second to the third GDP reports, so did its share of after-inflation GDP – from 6.13 percent to 6.14 percent. But this figure was higher in the third quarter (6.33 percent), and the fourth quarter result is still well below the record 7.47 percent, reached in the first quarter of 2022.
As a contributor to fourth quarter growth, trade decreased in both relative and absolute terms over the results from the second GDP read – from having added 0.46 percentage points (17.36 percent) to a 2.65 percent sequential expansion to accounting for 0.42 percentage points (16.47 percent) of 2.55 percent quarterly growth.
Both sets of figures, though, are way off their third quarter counterparts – when trade fueled nearly all (2.86 percentage points) of 3.20 percent growth. That was the biggest absolute amount in 42 years, though far from a long-term high in relative terms.
Put differently, had the deficit not changed from the second to third GDP releases for the fourth quarter, the economy would have grown not by 2.55 percent but by a considerably slower 2.13 percent. The comparable previous figures for the fourth quarter were growth of 2.19 instead of 2.65 percent.
The new GDP report shows that exports dropped more in the fourth quarter than previously estimated. The second read pegged the quarterly decline at 0.41 percent – from the third quarters’s record $2.6041 trillion to $2.5934 trillion. This slippage was the first since the first quarter of 2022.
Today’s results judged the decrease from the third quarter to be nearly twice as big (0.94 percent) – to $2.5796 trillion. At least it was still the second best total ever.
Nonetheless, the increase in total exports since the last pre-pandemic-y fourth quarter of 2019 is now just 0.30 percent. As of the previous read, it was 0.84 percent, and as of the third quarter, 1.26 percent.
By contrast, at an annualized $3.8317 trillion, the latest total real import figure was fractionally higher than that in last month’s GDP report, but 1.06 lower than the third quarter result – a dropoff steeper than that of exports. Moreover, this second straight quarterly decrease is still the longest since the year between the second quarter of 2019 and the peak pandemic-y second quarter of 2020. And since the last full pre-pandemic fourth quarter of 2019, they’re up just 12.54 percent as opposed to the 12.43 percent calculable last month and the 13.75 percent since the third quarter.
As for total real imports, they’re now pegged at $3.8182 trillion for the fourth quarter – 0.35 percent lower than the previous estimate of $3.8317 trillion, and 1.41 percent from the third quarter result.
But the sequential decrease is still the second straight – the longest such stretch since that CCP Virus-influenced year between the second quarter of 2019 and the second quarter of 2020. And since just before the pandemic’s arrival in force, overall imports are now up just 12.14 percent – versus the 12.43 percent calculable from last month’s report and the 13.75 percent as of the third quarter.
This latest fourth quarter GDP report pegged the trade deficit in goods at $1.4182 trillion – down from the previous read by 0.26 percent and from the third quarter total by 0.99 percent.
The goods trade gap, moreover, still decreased for the third straight quarter – a development that hasn’t been seen since the pandemic-heavy fourth quarter, 2019 to second quarter, 2020 period. And it remained the lowest total since the $1.4647 trillion recorded for the fourth quarter of 2021.
As a result, this trade shortfall is now 32.96 percent during the post-fourth quarter, 2019 period, down from the 33.31 percent calculable from the last GDP release and 34.30 percent as of the third quarter.
America’s trade in services is still in surplus, as has long been the case, but the fourth quarter estimate has now been lowered by fully 2.42 percent from the previous read – from $182.1 billion to $177.7 billion. But it’s still 8.69 percent higher than the third quarter result of 163.5 billion.
The previous GDP report pegged this service trade surplus as 22.77 percent below its immediate pre-pandemic level of $235.8 billion. Now it’s sunk to 24.64 percent below. Through the third quarter, the decrease was 30.66 percent.
The new GDP release shows fourth quarter goods exports to be $1.8648 trillion – which still represents their first sequential shrinkage since the third quarter of 2021. This figure is up fractionally from that in the previous read, and 2.37 percent below the record third quarter total of $1.9010 trillion.
These fourth quarter exports stayed at 4.38 percent above their immediate pre-pandemic level. As of the third quarter, they were 6.92 percent greater.
According to the second fourth quarter GDP release, constant dollar goods imports in the fourth quarter still decreased for the third consecutive time – the longest stretch since the economically weak period between the fourth quarter of 2019 through the second quarter of 2020.
At $3.2830 trillion, these purchases from abroad were down 0.11 percent from the previous estimate of $3.2866 trillion, and 1.51 percent from the third quarter’s $3.3334 trillion. And they still remained the lowest such total since the $3.2582 trillion from the fourth quarter of 2021.
Goods imports are now 15.07 percent higher than in the immediately pre-pandemic-y fourth quarter of 2019, versus the 15.19 percent increase calculable in last month’s GDP release. and the 16.83 percent increase as of the third quarter.
Big revisions were made in the fourth quarter services exports figures, however. Previously judged to be $744.1 billion (up 2.99 percent from the third quarter’s $722.5 billion), they’re now estimated at $731.4 billion. That’s fully 17.07 percent lower.
As a result, they’re now up just 1.23 percent from the third quarter, and down 7.04 percent since just before the CCP Virus’ arrival state-side in late, 2019, versus the 5.43 percent calculable from the previous GDP release.
What hasn’t changed: Services exports have still shrunk for an unprecedented ten consecutive quarters.
Revisions were also noteworthy for fourth quarter services imports. Previously reported at $562.0 billion (0.54 percent more than the third quarter’s $559.0 billion) they’re now pegged at $553.7 billion (0.95 percent less). And the downgrade from that previous fourth quarter total is 1.48 percent.
Services imports have still declined on a quarterly basis two straight times – for the first time since the pandemic-dominated year between the second quarter of 2019 through the second quarter of 2020. But since the virus’ arrival in force, services imports have now grown by just 0.49 percent, versus the1.56 percent calculable from the previous fourth quarter GDP release and the 1.47 percent increase as of the third quarter.
As with the first two fourth quarter GDP reports, the annual figures in the new release were worse than the quarterlies, but the differences were smaller because a longer timeframe is involved.
The final (for now) 2022 overall trade deficit of $1.3567 trillion (we’re no longer annualizing numbers) was just fractionally higher than the total in the second read, and represented both the ninth straight yearly increase and the ninth straight yearly record. The gap topped 2021’s total of $1.2334 trillion by ten percent.
This trade shortfall’s share of GDP ticked up, too, from the 6.77 percent calculable from the previous GDP read to 6.78 percent, and set an annual record for the third straight year. The third quarter figure was 6.29 percent.
The deficit’s subtraction from to economic growth last year was scaled down a bit in relative terms, from the 0.40 percentage points of 2.07 percent GDP expansion reported in the previous GDP release to 0.40 percentage points of 2.08 percent growth. In other words, without the rise in the gap, 2022 growth would have been 2.48 percent – or 19.23 percent higher.
But the deficit’s 2022 impact on growth differed dramatically from the results from 2021, when the gap subtracted 1.25 percentage points from that year’s 5.95 percent growth.
The total for the combined goods and services exports deficit`changed only marginally as well – from the $2.5378 trillion reported in the previous GDP release to $2.5344 trillion, a difference of 0.13 percent.
As a result, overall exports swelled from 2021’s $2.3668 trillion by 7.08 percent, not the 7.22 percent increase recorded in the previous GDP release. As of that previous report, this increase was the fastest since 2010’s 12.88 percent – when the economy was recovering from the Great Recession that followed the Global Financial Crisis. Now however, it’s slipped back to the fastest since 2011’s 7.17 percent. But the annual improvement is still the second straight.
Yet the estimate for last year’s combined goods and services imports edged down from that in the previous GDP read – by 0.09 percent, from $3.8944 trillion to $3.8910 trillion. As a result, these foreign purchases are now 8.08 percent above those of 2021’s $3.6002 trillion, not the 8.17 percent calculable from the previous release.
All the same, total imports still rose in 2022 for the second straight year, and set a second straight annual record.
The goods trade deficit was revised down fractionally, too – by 0.06 percent, from $1.5228 trillion to $1.5219 trillion. Consequently, this trade shortfall is now pegged at 7.62 percent greater than 2021’s $1.4141 trillion, not 7.69 percent higher.
But these downgrades still left the 2022 goods trade gap as the fourth straight annual record and the thirteenth straight annual increase. The latter is the longest such streak ever in a data series going back to 2002.
Also revised down – the longstanding services trade surplus in services. Reported in the previous GDP read at $162.3 billion, it’s now estimated at a 0.74 percent narrower $161.1 billion.
These new results left the 2022 services surplus 6.72 percent lower than 2021’s $172.7 billion level – instead of the 5.91 percent difference calculable from the previous release. The services surplus has still, however, contracted for the fifth straight year – the longest such period since these data began to be collected in 2002, and the 2022 total is still the lowest since 2010’s $158.6 billion.
Goods exports stayed unrevised in the latest GDP release at $1.8377. So their 2022 level was still 6.29 percent greater than 2021’s $1.7289 trillion, and the absolute total remained the second consecutive yearly increase and a new record – topping 2019’s $1.7915 trillion by 2.61 percent.
The 2022 goods imports estimate dipped by just 0.03 percent – from the previous GDP report’s $3.3605 trillion to $3.3596 trillion. The annual increase went from the 6.92 percent calculable from the previous GDP read to 6.89 percent, but the absolute 2022 figure remained a second straight all-time high.
The 2022 services exports total was also downgraded in the latest GDP report. Previously judged to be $717.3 billion, they’re now recorded at a 0.45 percent lower $714.1 billion. The increase over 2021’s $6.56.9 billion level also fell – from 9.19 percent to 8.71 percent. But it’s still the strongest improvement since 2007’s 13.08 percent spurt, and the annual advance is still the second straight.
Finally, the 2022 services import level was revised down as well, falling by 0.36 percent from the previous GDP report’s $555 billion to $553 billion. But the 14.21 percent annual increase was still the fastest ever, besting even 2021’s rapid 12.27 percent.
In last month’s report on the previous GDP release, I argued that because the latest domestic economic developments pointed to more consumer spending, and greater reluctance by the Federal Reserve to fight it with ever tighter monetary policies, the U.S. trade deficit looked set to resume rising.
Since then, another big reason for more Fed caution in inflation-fighting has of course emerged – the recent outbreak of turmoil in the banking system. All else equal, the drop in lending that seems likely to take place should generate slower spending by both businesses and consumers. Therefore, it should aid the anti-inflation fight without the need for a hard-line on interest rates and even shrinking the money supply from its current bloated levels.
Fed Chair Jerome Powell even said in his latest press conference that “you can think of [the lending effect of the banking woes] as being the equivalent of a rate hike or perhaps more than that….”
But all else isn’t equal. In particular, U.S. consumers overall are still flush with cash and as the next presidential election draws nearer, politicians will be increasingly tempted to prop up growth, employment, and therefore more consumption with more government stimulus. So I remain convinced that despite the progess seen in the fourth quarter per se, the trade deficit is likely to start ballooning again.