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exports, GDP, gross domestic product, imports, inflation, inflation-adjusted growth, real exports, real GDP, real imports, real trade deficit, Trade, trade deficit, {What's Left of) Our Economy
The trade highlights of today’s final (for now!) official estimate of U.S. economic growth in the third quarter of this year further contribute to a story line that only the stereotypical two-handed economist could love.
On the one hand, even though this morning’s trade figures from the Commerce Department weren’t quite as good as those in last month’s second estimate, they continued the encouraging trend of U.S. growth (as measured by changes in the gross domestic product, or GDP – the standard measure of a national economy’s size) picking up while the trade deficit fell.
Such results mean that growth (expressed in inflation-adjusted terms, which are the most widely followed) has been becoming healthier, based more on producing and less on debt-fueled spending. That’s much better than the usual reason for a trade gap narrowing – because the economy slowed significantly and even shrank, and imports therefore went way down.
In fact, even better, while inflation-adjusted imports did fall on quarter in the third quarter, real exports rose. Interestingly, that happy combination of events hasn’t happened since the fourth quarter of 2019, just before the arrival state-side of the CCP Virus pandemic.
On the other hand, the third quarter ended in September. Since then, both the September and October monthly trade reports have been released, and they strongly indicate that this winning streak (which began in the year’s first quarter) has ended. (See here and here.)
For today, though, since the new numbers close out the third quarter, let’s focus on the good news. The Commerce Department upgraded its growth estimate for those months from 2.90 percent at annual rates in real terms to 3.20 percent. And although the quarter’s inflation-adjusted trade gap increased, the increase was tiny – from $1.2647 trillion at annual rates to $1.2688 trillion.
In addition, the new figures still show a second straight quarterly drop in the trade deficit (from the $1.4305 trillion annual level for the second quarter) – a development not seen since the period from the fourth quarter of 2019 through the second quarter of 2020, which covers the peak of the destructive first wave of the CCP Virus and the sharp economic downturn it triggered.
Further, that $1.2688 trillion amount is still the lowest quarterly constant dollar deficit total since the fourth quarter of 2021 ($1.2796 trillion annualized).
The quarterly deficit decrease of 11.30 percent wasn’t as fast as the 11.59 percent plunge calculable as of last month. But it was still the biggest since the 17.95 percent nosedive between the first and second quarters of 2009, when the economy was still mired in the Great Recession that followed the Global Financial Crisis.
And although the price-adjusted trade shortfall as a share of real GDP rose from the 6.31 percent recorded last month to 6.33 percent, that number is still the lowest since the 6.16 perccent of the second quarter of 2021 and a big improvement from the 7.19 percent in the second quarter of this year.
The sequential reduction in the trade deficit also remained a huge source of the third quarter’s growth, though its role was a little smaller than reported last month. Then, the deficit’s shrinkage accounted for 2.93 percentage points of the 2.90 percent real growth. That amount was the biggest absolute number since the 2.96 percentage point add in the third quarter of 1980.
And without this trade contribution, all else equal, real GDP would have slipped by 0.03 percent annualized and adjusted for inflation – which would have continued the recession that began in the first quarter. (As always the case with the GDP figures, one element like trade can produce more than all the total change because increases or decreases in other elements can offset it.)
As of today, a smaller trade deficit fueled a still impressive 2.86 percentage points of the 3.20 percent real annual growth estimate that remained the biggest absolute total in 42 years. So absent that trade contribution, the economy all else equal would have grown by a measly 0.34 percent after inflation at annual rates – just a little over a tenth as fast.
But in relative terms, trade’s role in the economy’s quarterly expansion or contraction remained far off the record. In fact, its relative importance was much greater in the second quarter, when its drop added 1.16 percentage points of growth while GDP dipped by 0.58 percent in real annual terms.
Even so, the recent trade deficit improvement needs to be put in perspective: The gap remains 52.35 percent wider than in the fourth quarter of 2019, the last full quarter of data before the CCP Virus’ arrival. That’s slightly worse than the 51.86 percent deterioration calculable last month.
According to the new GDP report, inflation-adjusted total exports rose by 3.46 percent sequentially in the third quarter, from $2.5169 trillion at annual rates to $2.6041 trillion. That’s a bit worse than the 3.63 percent advance calculable last month. But the new total is still a new record (surpassing the $2.5823 trillion of the first quarter of 2019). And such overseas sales are still 1.26 percent higher than their immediate pre-pandemic level, versus the 1.42 percent calculable last month.
Total price-adjusted imports were virtually unrevised from last month’s estimate, coming in this morning at $3.8729 trillion at annual rates. As a result, however, they still sagged quarter-to-quarter (by 1.90 percent from the second quarter’s record $3.9475 trillion) only for the first time since the second quarter of 2020 (the peak pandemic quarter). These U.S. overseas purchases are now up 13.75 percent since just before the pandemic’s arrival in force in early 2020.
Goods trade comprises the vast majority of total U.S. trade, so it’s important to note that it grew over the third quarter’ssecond estimate – from $1.4286 trillion at annual rates to $1.4324 trillion. But it’s still down for the second consecutive quarter. This “final” total is still the lowest since the $1.4144 trillion recorded in the third quarter of last year. And the sequential tumble of 9.60 percent (from $1.5846 trillion) is still the biggest since the 12.63 percent plunge during the Great Recession-y second quarter of 2009.
But whereas the goods deficit was up since the fourth quarter of 2019 by 33.94 percent as of last month, now the increase is 34.30 percent.
The flow of slightly worse trade news continued with the results from the service sector. Its longstanding surplus was revised down for the third quarter from $164.3 billion at annual rates to $163.5 billion. But the improvement over the second quarter’s $149.4 billion annualized was still a healthy 9.44 percent and this quarterly rise was still the strongest since the 12.90 percent in the fourth quarter of last year.
Yet the unusually hard pandemic hit taken by service industries is still clear from this surplus’ change from the fourth quarter of 2019. It’s 30.66 percent lower.
Taking inflation into account, goods exports remained at their third consecutive quarterly record according to the new GDP report, and the revised total was a fractionally upgraded $1.9010 trillion at annual rates. The improvement over the second quarter: 4.17 percent. And since just before the CCP Virus began roiling the U.S. economy, these exports have grown by 6.41 percent in constant dollars.
Goods imports came in 0.12 percent higher in today’s GDP report than last months – $3.3334 trillion annualized as opposed to $3.295 trillion. But they were nonetheless 2.23 percent lower than in the second quarter, and still fell in back-to-back quarters for the first time since that fourth quarter, 2019-second quarter, 2020 span covering the early pandemic period.
Moreover, these purchases are now 16.83 percent higher after inflation than in the fourth quarter of 2019, just before the CCP Virus’ arrival in force.
Real services exports climbed sequentially during the third quarter, too, but by just 1.83 percent over the second quarter’s $709.5 billion annualized, rather than the 2.40 percent judged last month. The new $722.5 billion figure is a full 8.17 percent below that of the fourth quarter of 2019.
Finally, the new GDP report showed that inflation-adjusted services imports actually fell by 0.20 percent sequentially in the third quarter, rather than increasing by 0.37 percent as reported last month. These results broke a five-month string of quarterly increases, and the new $559 billion total is now just 1.45 percent higher than its immediate pre-pandemic level, as opposed to the 2.03 percent advance calculable last month.
But as observed above, this final third quarter GDP release might mark a high water mark for U.S. trade flows for the time being. The deficits could well keep falling in after-inflation terms (those aforementioned more downbeat recent monthly reports present the pre-inflation figures). The likeliest reason, though, would seem the advent of a U.S. recession that depresses imports. And however necessary this kind of slump may be needed to fight inflation and improve the chronic, still massive U.S. production-consumption imbalance over the longer term, that’s medicine that few Americans will be welcoming.