(What’s Left of) Our Economy: The U.S. Trade Deficit Remains at a Crossroads

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.

Advertisement

(What’s Left of) Our Economy: The Real Trade Deficit at a Crossroads

Tags

exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, inflation-adjusted growth, real GDP, real trade deficit, recession, services trade, Trade, trade deficit, {What's Left of) Our Economy

Today’s first official estimate of U.S. economic growth in the first quarter of this year was one of the most peculiar reports in this series I can remember.

On the one hand, this read (which will be revised twice in the next two months) showed a 1.06 percent improvement after inflation at annual rates in America’s gross domestic product (GDP – the standard measure of an economy’s size). That’s a marked slowdown from the fourth quarter’s 2.55 percent real annualized growth. So not great economic news.

On the other hand, price-adjusted GDP still grew, and the price-adjusted total trade deficit slipped. In fact, it shrank for the third straight time while the economy expanded. That kind of streak hasn’t been seen 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.

Despite that reference, that’s encouraging economic news, since it indicates that the growth, however measly per se, remained healthy quality-wise. In other words, it stemmed more from producing than from spending – the opposite result from the typical consumption-led growth pattern usually signaled by a widening rising trade gap.

Specifically, in the first quarter, the constant dollar goods and services trade deficit dipped by 0.23 percent, from the fourth quarter’s inflation-adjusted $1.2386 trillion to $1.2358 trillion. (After-inflation figures at annual rates will be the measure used in this post unless otherwise specified.) The drop was also the fourth straight sequential decrease of any kind – which hadn’t happened since the year between the second quarters of 2019 and 2020.  The end of that period, of course, is when the economy began suffering the effects of the CCP Virus. And the new level is the lowest since the $1.2309 trillion recorded in the second quarter of 2021.

The first quarter deficit represented 6.08 percent of the after-inflation GDP – down from the fourth quarter’s 6.14 percent and also the lowest such figure since the second quarter of 2021 (6.06 percent). All these numbers are way below the record of 7.47 percent in the first quarter of 2022.

Not surprisingly, though, the slight contraction in the overall trade deficit contributed little to first quarter growth either in absolute or relative terms – fueling just 0.11 percentage points of the 1.06 percent advance. In the fourth quarter, the reduction in the goods and services deficit accounted for 0.42 percentage points of the 2.55 percent growth.

The first quarter data left the total trade shortfall 48.39 percent greater than the amount in the fourth quarter of 2019 – the final full data quarter before the pandemic arrived stateside in force. As of the fourth quarter, it had been 48.73 percent higher.

Total exports climbed in the first quarter by 1.18 percent, 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.

Total imports in the first quarter rose for the first time in three quarters – by 0.73 percent, from $3.2830 trillion to $3.8460 trillion. These purchases now top the fourth quarter, 2019 total by 12.96 percent. As of the fourth quarter of last year, they were up by 12.14 percent.

The trade shortfall in goods dipped by 1.09 percent sequentially, from $1.4182 trillion to $1.4028 trillion. This fourth straight decrease matched that of the span between the second quarters of 2019 and pandemic-ridden 2020, and the level was the lowest since the $1.3965 trillion from the second quarter of 2021. This deficit is now 31.52 percent greater than just before the CCP Virus began roiling the economy, versus 32.96 percent growth as of the fourth quarter of 2022.

Goods exports reached an all-time high as well, increasing from the fourth quarter’s $1.8468 trillion to $1.9098 trillion. The old record of $1.9010 trillion in the third quarter of 2022 was 0.46 percent lower. These exports have now risen by 6.90 percent since the last pre-pandemic fourth quarter of 2019, versus the 4.38 percent growth as of last year’s fourth quarter.

As with total imports, goods imports rose for the first time in three quarters, too. The advance was 0.73 percent, from $3.8182 trillion to $3.8460 trillion, and it brought the post-fourth quarter, 2019 increase to 12.96 percent. As of last year’s fourth quarter, the increase was 12.14 percent.

The surplus in services trade, a major CCP Virus-era victim, sank in the first quarter sequentially from $177.7 billion to $167.7 billion. The 5.63 percent pull-back was the biggest since the 20.94 percent nosedive in the second quarter of 2021. Yet it also followed big third and fourth quarter jumps of 9.44 percent and 8.69 percent, respectively.

Still, the services surplus is down 28.88 percent since the fourth quarter of 2019, versus the 24.64 percent fall-off as of fourth quarter, 2022.

Services exports fell 1.41 percent in the first quarter, from $731.4 billion to $721.1 billion. This decrease was the first since the second quarter of 2020 – the first quarter heavily affected by the virus. Consequently, these sales are off by 8.35 percent since the last pre-pandemic quarter, versus the 7.04 percent calculable as of last year’s fourth quarter.

Services imports contracted only from $553.7 billion to $553.4 billion, but the decrease was the third straight. These purchases have now risen by 0.44 percent since the arrival of the CCP Virus in force, versus the 0.49 percent calculable as of the previous quarter.

With the new feeble first quarter growth figure seeming to indicate surging odds of an imminent recession, the real trade gap presumably will keep narrowing, too. But the economy is still being distorted by the virus and Washington’s roller-coaster responses.

As I’ve written, the current slowdown – due to the Federal Reserve’s inflation-fighting efforts – could well stabilize and even reverse itself if the central bank pauses or ends its credit tightening for fear of bringing on a hard landing, and if politicians succumb to election-year temptations to keep voters happy with added government spending. In that case (the one I consider likeliest), the real trade deficit could well be headed higher once again, too.    

 

(What’s Left of) Our Economy: The New U.S. GDP Figures Remained a Mixed Bag on Trade

Tags

banking crisis, consumers, consumption, exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, inflation-adjusted growth, interest rates, monetary policy, real GDP, real trade deficit, services trade, Trade, trade deficit, {What's Left of) Our Economy

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.         

(What’s Left of) Our Economy: Latest U.S. Growth Figures Confirm (Ambiguous) Recent Trade Trends

Tags

exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, inflation, inflation-adjusted growth, real GDP, real trade deficit, recession, services trade, Trade, trade deficit, {What's Left of) Our Economy

The trade highlights of last Thursday’s second official estimate of U.S. economic growth in the fourth quarter of last year and full-year 2022 were nearly identical to those reported in the first read – pretty good on a quarter-to-quarter basis when it comes to reducing the long bloated trade deficit, but pretty discouraging on a year-to-year basis.

Starting with the quarterly numbers, the new data show that the inflation-adjusted trade gap narrowed somewhat less from the third quarter’s $1.2688 trillion at annual rates than initially reported – by 2.40 percent instead of 2.87 percent. (All value figures in this post will be in after-inflation dollars unless otherwise specified because the most closely followed numbers in the economic growth releases containing these quarterly trade statistics are those that are adjusted for price changes.)

But this means that as of the fourth quarter, the deficit still fell for the third consecutive three-month stretch – the first such span since the period from the second quarter of 2019 through the second quarter of 2020. That’s especially heartening since that stretch includes the CCP Virus’ arrival in the United States, which naturally depressed imports and the trade deficit because it crushed the entire economy. During last year’s third and fourth quarters, of course, the economy expanded.

In that vein, the fourth quarter also remains the second straight to see the economy expand as the overall deficit dropped – the kind of improvement that hasn’t been seen since the year between the second quarter and fourth quarters of 2019, and that signals growth relying more on the healthy combination of investing and producing rather than on the crutch of borrowing and spending.

Moreover, the new fourth quarter level of $1.2384 trillion annualized for the combined goods and services trade shortfall is still the lowest since the $1.2039 trillion recorded in the second quarter of 2021. One discouraging note, though: As with the previous fourth quarter growth report, the new release shows that the trade deficit sank on a decrease of both exports and imports. During the second and thid quarters, it fell because exports advanced and imports retreated.

Another step backward: As of the first fourth quarter report, the trade deficit had increased by 47.98 percent since the last pre-pandemic quarter, the fourth quarter of 2019. But the latest figures show that increase is up to 48.70 percent. At least that result is still better than the 52.35 percent recorded in the third quarter.

In addition, the slight increase in absolute terms of the fourth quarter trade deficit pushed it up from the 6.10 percent of inflation-adjusted gross domestic product (GDP – the standard measure of the economy’s size) to 6.13 percent. In the third quarter, however, this figure stood at 6.33 percent, and the new result is still much lower than the all-time high of 7.47 percent during the first quarter of last year.

Trade’s contribution to fourth quarter growth stayed relatively subdued as well. In the first read, the gap’s shrinkage fueled 0.56 percentage points (19.56 percent) of the estimated 2.86 percent real expansion at annual rates. In other words, had the deficit not changed, fourth quarter constant dollar annualized growth would have been just 2.30 percent.

The second read judges trade’s role as having added 0.46 percentage points (17.36 percent) of 2.65 percent annualized growth – dipping in both absolute and relative terms. And had the shortfall not declined, fourth quarter growth would have been just 2.19 percent.

In the third quarter, the trade deficit’s decrease was responsible for nearly all its growth – 2.86 percentage points of the 3.20 percent annualized price-adjusted GDP increase. That was the biggest absolute amount in 42 years, though far from a long-term high in relative terms.

As mentioned above, the new total export number for the fourth quarter was lower than the first release’s estimate, but only fractionally so. And at $2.5934 trillion at annual rates, these U.S. sales abroad were 0.41 percent less than the third quarter’s all-time high of $2.6041 trillion and still represented the first sequential decrease since the first quarter of last year. At the same time, the new fourth quarter total remains the second best ever.

The new results, though, leave total real exports a mere 0.84 percent above the level of that last pre-pandemic-y fourth quarter of 2019. As of the first read, that increase was 0.92 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.

The second fourth quarter GDP report pegged the annualized trade deficit in goods at $1.4219 trillion – 0.23 percent higher than the first report’s $1.4186 trillion but down 0.74 percent from the third quarter’s $1.4324 trillion.

But despite continued GDP growth, this shortfall still fell for the third straight quarter – a streak that hasn’t been seen since the CCP Virus-dominated period from the fourth quarter of 2019 and the second quarter of 2020. In addition, the new goods trade deficit level was still the best since the $1.4647 trillion of the fourth quarter of 2021.

Consequently, the goods gap has now increased by 33.31 percent since the fourth quarter of 2019. As of last month’s read, the difference was 33 percent even, and as of the third quarter, 34.30 percent.

The longstanding surplus is now judged to have widened sequentially in the fourth quarter by 11.38 percent, from $163.5 billion at annual rates to $182.1 billion. This result marks a downgrade from the first fourth quarter report, which showed a surplus of $184.4 billion at annual rate (the highest such level since the $187.50 billion of the fourth quarter of 2020) and an increase over the third quarter total of 12.78 percent.

With the outsized pandemic-related hit taken by the service sector, this surplus is now still 22.77 percent below the immediate pre-pandemic level of $235.8 billion annualized. In the first GDP read for the fourth quarter, this decline was 21.80 percent, and as of the third quarter, 30.66 percent.

The latest fourth quarter result estimate still reports that goods exports registered their first sequential fall-off since the third quarter of 2021. But that the decrease from the third quarter record total of $1.9101 trillion annualized was greater (by 2.38 percent, to an annualized $1.8647 trillion) than initially judged (2.24 percent, to $1.8647 trillion).

Whereas last month’s GDP report estimated the pandemic period’s goods export improvement at 4.52 percent, it’s now pegged at 4.38 percent since the fourth quarter of 2019. As of the third quarter, goods exports were up 6.92 pecent.

According to the second fourth quarter GDP release, constant dollar goods imports in the fourth quarter fell fractionally less than initially reported, with the $3.2866 trilion anunalized total now down 1.40 percent from the third quarter’s $3.3334 trillion rather than the 1.43 percent reported last month. This decrease also remained the third straight – which hasn’t happened since that economically weak period between the fourth quarter of 2019 through the second quarter of 2020. And the new figure is still the lowest since the $3.2582 trillion recorded in the fourth quarter of 2021.

In inflation-adjusted terms, goods imports are now 15.19 percent higher than in the immediately pre-pandemic-y fourth quarter of 2019, versus the 15.16 percent increase calculable in last month’s GDP release. and the 16.83 percent increase as of the third quarter.

Services exports in the fourth quarter, by contrast, increased by more than judged in last month’s GDP report, to $744.1 billion at annual rates (up 2.99 percent from the third quarter’s $722.5 billion) instead of to $740.0 billion (up 2.42 percent).

This increase remained the tenth straight on a sequential basis, but these overseas sales still expanded from $722.5 billion after inflation at annual rates to $740 billion, a 2.42 percent improvement that represented the tenth straight sequential increase in thse sales. At the same time, real services exports are still down by 5.43 percent from the fourth quarter, 2019 level of $786.6 billion, rather than the 5.44 percent calculable in last month’s release and the 8.17 drop calculable from the third quarter figures.

Inflation-adjusted services imports, though, rose faster in the fourth quarter than the initial read judged – to $562.0 billion at annual rates (up 0.54 percent from the third quarter’s $559.0 billion) instead of edging up fractionally (to $559.6 billion) as initially estimated.

This advance places services imports growth during the pandemic period at two percent versus the 1.56 percent calculable from last month’s release and the 1.45 percent since the third quarter.

Turning to the notably worse annual figures, between 2021 and 2022, the combined goods and services trade gap still widened for a ninth consecutive year, and to a ninth straight yearly record, with the new $1.3566 trillion figure coming in slightly (0.l1 percent) higher than the $1.3551 reported last month. As a result, it’s now pegged at 9.99 percent higher than the 2021 total of $1.2334 trillion, not the 9.87 percent calculable as of the first fourth quarter GDP release.

But since the economy kept growing in real terms, although the total trade shortfall still set its third straight record as a share of GDP, the exact figure stayed at 6.77 percent. Its third quarter counterpart was 6.29 pecent.

The trade shortfall’s contribution to economic growth last year didn’t change much between the first and second GDP reads, either. Last month, it was reported as fueling 0.40 percentage points to a 2.08 percent inflation-adjusted annual growth pace. This month, it’s judged to have added the 0.40 percentage points to a 2.07 percent year-on-year expansion. As noted in last month’s RealityChek post, both figures are far from records.  So had the inflation-adjusted trade deficit not changed, real growth in the fourth quarter would have been a sluggish 1.77 percent. 

The total real exports results were scarcely changed, either. In the first fourth quarter GDP release, the second straight annual increase was pegged at 7.25 percent, from $2.3668 trillion to $2.5384 trillion. That jump was the highest since 2010’s 12.88 percent in 2010 – when the economy was recovering from the Great Recession that followed the Global Financial Crisis.

The second read downgraded the 2002 combined goods and services export total to $2.5378 trillion, resulting in a 7.22 percent annual improvement that remained the strongest since 2010.

Total real imports for 2022 were upgraded marginally, from the $3.8935 trillion estimated last month to $3.8944 trillion. This figure remained both the second consecutive quarterly increase and the second straight quarterly record. In addition, the annual increase went up from 8.15 percent to 8.17 percent from the 2021 level of $3.6002 trillion.

As for the goods trade deficit, it was revised fractionally higher, too, from $1.5220 trillion to $1.5228 trillion. This trade shortfall still represented both the fourth straight all-time annual high, and the thirteenth consecutive increase – itself a new record in a data series that began in 2002. And this shortfall is now 7.69 percent higher than 2021’s $1.4141 trillion, versus the 7.63 percent calculable last month.

The longstanding services trade surplus was revised down in the new GDP figures, from the $162.8 billion estimated last month to $162.3 billion, a difference of 0.31 percent. That means that the yearly decrease was 5.91 percent, not the 5.23 percent previously recorded. But the new 2022 total is still the lowest such number since 2010’s $158.6 billion, and this fifth consecutive annual contraction is the longest such streak ever in another data series that goes back to 2002.

Goods exports of $1.8377 trillion represented a fractional downward revision from the first fourth quarter GDP’s estimate of $1.8383 trillion, and brought annual 2022 growth from 6.33 percent to 6.29 percent. This yearly increase, however, remained the second straight and the annual total a new record – topping 2019’s $1.7915 trillion by 2.61 percent.

At $3.3605 trillion, the new 2022 real goods imports results were virtually unchanged from the previous GDP release’s $3.3603 trillion, and pushed the annual increase from 2021’s $3.1430 trillion from 6.91 percent to 6.92 percent. This figure remained a second consecutive record.

Staying unrevised were the services exports, which are still judged to have surged by 9.90 percent from 2021-2022, the biggest such increases since 2007’s 13.08 percent. In absolute terms, the increase was from $656.9 billion to $717.3 billion..

But services imports rose faster between 2021 and 2022 than previously reported. Instead of climbing by 14.52 percent (from $484.2 billion to $554.0 billion), the increase is now pegged as one of 14.62 percent (to $555.0 billion). The increase was still the fastest ever, surpassing even last year’s robust 12.27 percent.

Although the trade highlights of the first two fourth quarter GDP reports were quite similar, the U.S. economic landscape has undergone some notable changes in the last three months. Inflation seems to have stopped disinflating, at least for the time being (see, e.g., here) no doubt partly as a result because growth has held up better than expected – both domestically and abroad. And surprisingly strong inflation and expansion seem to have firmed the Federal Reserve’s resolve to keep raising interest rates high enough to cool down the continued demand that continues to prop up prices.

But does the Fed really want to tip the economy into recession, especially with a presidential election cycle already in its infancy? Would Congress really permit that to happen, and resist the urge to fill up consumers’ pockets again, whether through more spending or lower taxes or some combination of the two? That would surprise the living daylights out of me, which is why I’m still expecting a short, shallow recession, followed by stagflation – and by steadily worsening trade deficits.

(What’s Left of) Our Economy: A Glass Half Empty or Full Story for the Inflation-Adjusted Trade Deficit?

Tags

exports, GDP, goods trade, gross domestic product, imports, real GDP, real trade deficit, services trade, Trade, trade deficit, {What's Left of) Our Economy

The trade highlights of yesterday’s first official estimate of U.S. economic growth in the fourth quarter of last year and full-year 2022 provide a great lesson on how the pictures drawn by data can vary greatly depending on which time frame you’re looking at – even within the span of a single year.

The quarter-to-quarter numbers look rather good – in terms of deficit reduction – but the annual numbers are pretty discouraging.

We’ll start with those quarterly data, which show that the inflation-adjusted trade deficit shrank for the third consecutive time in the fourth quarter – by 2.87 percent, from $1.2688 trillion at annual rates to $1.2324 trillion. This first such stretch since the year between the second quarter of 2019 through the second quarter of 2020, brought the quarterly shortfall down to its lowest level since the second quarter of 2021 ($1.2039 trillion annualized).

These results also confirmed that the fourth quarter was the second straight to see the economy expand as the deficit contracted. This marked the first time that’s been the case since the period between the second and fourth quarters of 2019, and signals that the economy has been growing healthily, relying more on investment and production than on borrowing and spending.

One sign of regression along these lines: The trade deficit declined in the previous two quarters because exports rose and imports dropped. In the fourth quarter, however, both decreased.

Moreover, the after inflation combined goods and services trade deficit is still 47.98 percent above its level in the fourth quarter of 2019 – just before the United States and its economy began suffering the full effects of the CCP Virus. As of the third quarter, this increase was 52.35 percent.

But overall, the new quarterly statistics still warrant a so-far-so-good interpretation.

Trade’s contribution to the fourth quarter’s growth was much smaller than in the third quarter. Then, it fueled 2.86 percentage points of the 3.20 percent real annual advance – the biggest absolute total in 42 years (but far from a long-term high in relative terms). Without that trade ooost, all else equal, the economy would have grown by a measly 0.34 percent after inflation at annual rates – just a little over a tenth as fast.

In the fourth quarter, trade’s growth contribution was just 0.56 percentage points of 2.86 percent real annualized growth. That’s still positive, though. And if not for this narrowing of the gap, constant dollar GDP would have still expanded, but just by a so-so 2.30 percent.

Drilling down, the new GDP report pegs fourth quarter sequential total exports at $2.5955 trillion in constant dollars at annual rates. This drop was the first since the first quarter of last year, but the slip was just 0.33 percent from the third quarter’s record $2.6041 trillion and the second best total ever.. At the same time, real exports are still only 0.92 percent higher than in the last pre-pandemic quarter. As of 3Q, these sales were 1.26 percent higher.

Total price-adjusted imports retreated, too – and as indicated above for the second consecutive quarter. That’s the longest such streak since the year between the second quarter of 2019 and the peak pandemic-y second quarter of 2020. The actual decrease was steeper than that of exports – 1.16 percent, to $3.8729 trillion at annual rates. Yet these purchases are fully 13.75 percent higher than just before the CCP Virus’ arrival stateside in full force. – roughly where they stood as of te third quarter.

The real deficit in goods sank by 2.84 percent on quarter, from $1.4324 trillion at annual rates to $1.3916 trillion. This sequential decrease was the third straight (the first such span since the peak CCP Virus-dominated period between the fourth quarter of 2019 and the second quarter of 2020). And it pushed this trade gap down to its lowest total since the first quarter of 2021’s $1.3809 trillion. Since just before the pandemic’s fourth quarter 2019 arrival stateside in force, the goods trade deficit is up by 27.54 percent. As of the third quarter, this increase was 34.20 percent.

The longstanding surplus in services jumped by 12.78 percent sequentially, from a price adjusted $163.5 billion annualized to $184.4 billion –the highest such level since the $187.50 billion of the fourth quarter of 2020. Yet reflecting the outsized hit taken by services industries since the virus struck the nation, this surplus is still 21.80 percent lower than in that immediately pre-Covid fourth quarter of 2019. As of this year’s third quarter, that decrease was 30.66 percent.

After-inflation goods exports dipped by 1.77 percent in the fourth quarter, from the $1.9101 trillion annualized total in the third quarter (marking the third straight quarterly record) to $1.8673 trillion. Real goods exports are now 4.51 percent greater than in the fourth quarter of 2019, versus the 6.41percent calculable as of the third quarter.

Constant dollar goods imports in the fourth quarter fell for te third consecutive time, too – a firs stnce the fourth quarter, 2019 through second quarter, 2020 period. The decrease of 1.43 percent, from $3.3334 trillion at annual rates to $3.2856 trillion, produced the lowest such goods import figure since the $3.2582 in the fourth quarter of 2021. In inflation-adjusted terms, goods imports are now 14.21 percent higher than in the immediate pre-pandemic-y fourth quarter of 2019, versus their 16.83 percent increase as of the third quarter.

Services exports in the fourth quarter expanded from $722.5 billion after inflation at annual rates to $740 billion, a 2.42 percent improvement that represented the tenth straight sequential increase in thse sales. But real services exports are still down by 5.44 percent since the fourth quarter of 2019, versus 8.17 percent off as of the third quarter.

Inflation-adjusted services imports were up for a tenth straight quarter, too, in the fourth quarter, but inched up just 0.11 percent, from an annualized $559 billion to $559.6 billion. As a result, their now 15.61 percent larger than just before the pandemic’s arrival in force, versus 14.52 percent as of the third quarter.

Many of the annual figures, however, showed deterioration. Between 2021 and 2022, the combined goods and services trade gap hit its ninth straight yearly record in real terms, as the gap widened by 9.87 percent, from $1.2334 trillion annualized to $1.3551 trillion.

In addition, as a share of real gross domestic product (GDP – the standard measure of the economy’s size), the trade gap set its third straight all-time high, worsening from 6.29 percent to 6.77 percent.

The trade shortfall’s yearly rise subtracted 0.40 percentage points from 2022’s 2.08 percent price -adjusted inflation adjusted growth – a share smaller in both absolute and relative terms than in 2021, when the larger trade deficit sliced 1.25 percentage points from 5.95 percent growth. Both figures are far from records.

Total real exports climbed for the second straight year in 2022, from $2.3668 trillion to 2.5384 trillion, with the 7.25 percent growth rate the strongest since 2010’s 12.88 percent in 2010 – when the economy was recovering from the Great Recession that followed the Global Financial Crisis.

Total real imports posted their second consecutive gain, too, as well as their second straight record. The 8.15 percent increase brought the total to $3.8935 trillion.

Another new all-time annual high in 2022 was set by the constant dollar goods trade deficit, and the record in this case was the fourth in a row. By widening by 11.50 percent, the gap hit $1.5220 trillion.

And continuing the bad news, the real services trade surplus slumped by 5.23 percent in 2022. Moreover, the $162.8 billion figure was the lowest since 2010’s $158.6 billion.

On the export front, constant dollar overeas sales of goods grew by 6.33 percent, from $1.7289 trillion to $1.8383`trillion. The increase was the second straight and the total a new record – topping 2019’s $1.7915 trillion by 2.61 percent.

Yet real goods imports rose even faster. The 6.91 percent advance brought them from $3.1430 trillion to $3.3603 trillion – a second consecutive all-time high.

After-inflation services exports jumped by 9.90 percent from 2021-2022, the biggest such increasesince 2007’s 13.08 percent. And the totals expanded from $656.9 billion to $717.3 billion..

As for price-adjusted services imports, their annual surge of 14.52 percent – from $484.2 billion to $554.0 billion was the fastest ever, surpassing even last year’s robust 12.27 percent.

As always with pandemict or post-pandemic (take your pick) U.S. economic data, the outlook for real trade flows is murky, and dependent on many big unknowables – mainly how much faster and higher the Federal Reserve will hike interest rates in order to fight inflation by slowing the economy, whether it will succeed, how long its inflation-fighting moves will take to impact economic growth and consumer spending fully, how China’s reopening after months of a lockdown-heavy Zero Covid policy will proceed, and whether growth in the rest of the world will perk up or slacken.

My hunch, for the short-term anyway, is that worse inflation-adjusted trade results may keep coming. For example, the quarterly real trade deficit decrease was the smallest of that current three-quarter string. Indeed, it was much smaller than the 11.30 percent plunge between the second and third quarters – which was the greatest 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.of 2007-08.

In addition, the latest government report projection for the monthly trade deficit (measured in pre-inflation dollars) shows a significant increase in the goods gap, which makes up the lion’s share of both total U.S. trade flows and the deficit. And even if the price-adjusted trade gap continues to fall, such results will be all the less impressive against the backdrop of the economic slowdown and even contraction that’s still being widely predicted.

More specifically, I suspect that American economic growth will either at least weaken as the trade deficit moves up, or that GDP will keep plowing ahead because personal consumption remains resilient, which will keep the trade shortfall on a rebounding course.  

(What’s Left of) Our Economy: A Trade High Water Mark Revealed in Today’s U.S. Economic Growth Report?

Tags

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.  

(What’s Left of) Our Economy: The Good U.S. Trade and Growth News Continues – For Now

Tags

exports, GDP, gross domestic product, imports, inflation, inflation-adjusted growth, real GDP, real trade deficit, Trade, trade deficit, {What's Left of) Our Economy

In my post on the first official read on America’s economic growth in the third quarter of this year, I wrote that “You couldn’t ask for a better” set of results on the trade front “unless you’re into making unreasonable requests.”

As it turns out, I may need to change my definition of “reasonable” somewhat. For however encouraging that initial estimate’s news that the economy grew at a solid rate after accounting for inflation while the trade deficit shrunk, today’s second release showed that real growth was a bit stronger than first judged, and the trade deficit decline a bit greater.

That’s cause for celebration because an expanding economy and a falling trade deficit means that growth is getting healthier – and more sustainable. Specifically, the gross domestic product (GDP, the standard measure of the economy’s size) is increasing less because Americans’ borrowing and spending are up than because they’re boosting production. And in that vein, the trade gap shrank for the ideal combination of reasons: Exports rose and imports decreased.

In that prior report on third quarter GDP, the U.S. government pegged growth at 2.54 percent in real terms at annual rates, and the trade deficit’s contraction from second quarter levels at 10.94 percent ($1.4305 trillion at annual rates to $1.2740 trillion).

This morning, those numbers were revised up to 2.90 percent annualized real growth and a trade deficit that came in at $1.2647 trillion. That’s not a lot lower, of course, but so far (there’s another GDP revision coming in a month), it’s the smallest quarterly trade shortfall since the $1.2309 trillion of last year’s second quarter.

Moreover, the new figures confirm that the constant dollar trade deficit has now retreated for two straight quarters since the stretch between the fourth quarter of 2019 and the second quarter of 2020. That period of course immediately preceded the arrival in force of the CCP Virus and its deeply depressing impact on the economy.

The 11.59 sequential narrowing of the trade gap also was still the biggest such improvement since the second quarter of 2009, when the economy was still stuck in the Great Recession that followed the global financial crisis (17.95 percent).

It brought the price-adjusted trade deficit as a share of real GDP down to 6.31 percent – its lowest level since that second quarter of 2021 (6.16 percent). And as of this latest government data, 12.24 percent plunge in this ratio from the second quarter’s 7.19 percent was the biggest sequentially since the 17.89 percent registered in that Great Recession-y second quarter of 2009.

All the same, the overall real trade deficit has ballooned by 51.86 percent since the last full pre-CCP Virus for the U.S. economy (the fourth quarter of 2019).

Trade’s contribution to third quarter growth rose in absolute terms from 2.77 percentage points to 2.93 percentage points – the best such performance since the 2.96 percentage points generated in the third quarter of 1980. (I mistakenly reported last month that the initial figure was the biggest since the second quarter’s 3.99 percentage points. But it was, as I correctly noted, the largest absolute figure for a quarter in which the economy expanded since that third quarter of 1980.)

In relative terms, though, trade’s contibution to third quarter growth was far from a record. Indeed, during the second quarter of this year, the decline of the trade deficit added 1.16 percentage points of growth while the economy contracted by 0.58 percent in real annual terms. (As with any individual element of GDP, the trade contribution can be greater than the overall growth rate when other elements decrease.)

Put differently, without this trade boost to growth, the economy in the third quarter would have been 0.03 percent smaller than in the second quarter in real, annualized terms – not 2.90 percent bigger.

Today’s GDP data showed that inflation-adjusted total exports rose by 3.63 percent sequentially (from $2.5169 trillion to $2.6083 trillion), The latter total is a new record (surpassing the old mark of $2.5823 trillion in the first quarter of 2019). And U.S. overseas sales of goods and services are now 1.42 percent above their immediate pre-pandemic level.

Total imports dipped sequentially not only for the first time since the second quarter of 2020 (the peak pandemic quarte) but by more than first judged – 1.89 percent versus 1.78 percent – and from a record $3.9475 trillion to $3.8730 trillion. They’re now 13.73 percent greater than in the immediately pre-pandemic-y fourth quarter of 2019.

In goods trade, which dominates U.S. trade flows, today’s figures show that the deficit sank on quarter by 9.84 percent versus the 9.51 percent estimated initially. This second straight shrinkage was the biggest in percentage terms since the 12.63 percent fall-off in that Great Recession-y second quarter of 2009 and depressed the shortfall to $1.4286 trillion – the lowest level since the third quarter of last year ($1.4144 trillion).

But the goods trade deficit has still worsened since just before the pandemic by 33.94 percent.

The U.S. after-inflation services trade figures also improved from the initial GDP report’s results, with the longstanding surplus – by 9.97 percent, from $149.4 billion at annual rates in the second quarter to $164.3 billion. The previous release put the increase at 7.43 percent, and the latest widening is the biggest since the 12.90 percent in the fourth quarter of last year.

Yet reflecting the hit globally taken by services industries, the services surplus is down 30.32 percent since just before the pandemic became roiling the national and world economies.

Inflation-adjusted goods exports in the third quarter hit $1.9009 trillion at annual rates – their third consecutive all-time high and an increase of 4.16 percent versus the 4.04 percent figure in the first estimate. These overseas sales have now risen by 6.40 percent since the fourth quarter of 2019.

By contrast, their imports counterparts declined by more than first judged – by 2.35 percent versus 2.26 percent, to $3.3295 trillion annualized. This second straight quarterly decrease was the first back-to-back drop since the fourth quarter, 2019-second quarter 2020 stretch that encompassed the CCP Virus’ devastating first wave.

After-inflation services exports in the third quarter were revised up as well, increasing by 2.40 percent versus the initial estimate of 2.03 percent, and now stand at $726.5 billion annualized. Yet just before the pandemic’s arrival, they were $786.8 billion – 8.30 percent higher.

Real services imports followed this trade balance improvement pattern, climbing by just 0.37 percent on quarter in the third quarter versus the 0.59 percent reported in the first estimate. And this sixth straight quarterly increase, to $562.2 billion at annual rates, means that these purchases are now up just 2.03 percent since the fourth quarter of 2019.

All good things must come to an end, however, and I’m concerned that this may be the case for the recent span of higher growth and smaller trade deficits. Principally, the third quarter ended in September, and the monthly U.S. trade reports (which also so far only go through September, and which aren’t adjusted for inflation) reveal precisely this dimmer picture.

In addition, the government’s advance figures on October goods trade (which also came out today) report both a big jump in the deficit, and one powered by falling exports and rising imports – exactly the opposite of the ideal pattern. But at least we’re due for one more estimate (for now) on third quarter GDP and inflation-adjusted trade flows. So make sure to enjoy that (likely) good trade news while you can! 

(What’s Left of) Our Economy: Trade Leads to Resumed and Healthier U.S. Growth

Tags

consumers, expansion, exports, Federal Reserve, GDP, goods trade, gross domestic product, imports, real GDP, real trade deficit, recession, services trade, stimulus, trade deficit, {What's Left of) Our Economy

You couldn’t ask for a better official first read on American trade flows and U.S. economic growth for the third quarter of this year than the one that came out on Thursday – unless you’re into making unreasonable requests.

On top of that report on the gross domestic product (GDP – the leading measure of the economy’s size) showing a return to expansion that ended the recession that marked the first half of the year; and on top of the trade deficit shrinking for the second straight quarter (a first since the third and fourth quarters of 2019), the trade gap shrank in the best possible way, for the best possible reason.

Here’s why. The new GDP figures (which will be revised twice more in the next two months, as is the case for every such release) estimated that the nation’s output of goods and services rose in inflation-adjusted terms (the measure most closely followed) by a solid 2.54 percent at annual rates.

And as real GDP climbed, the after-inflation trade deficit decreased from $1.4305 trillion annualized to $1.2740 trillion. That’s important because there’s nothing unusual about the trade shortfall declining when the economy contracts. In fact, that’s often the case. After all, a slumping economy pulls in fewer imports. But a smaller trade deficit during a quarter of growth? That’s unusual, and genuinely exciting, since it means that the growth has been healthy and, all else equal, sustainable – driven by production and not consumption.

Better yet, improvement was registered on both sides of the trade ledger, with exports up and imports down. The export progress was especially impressive, given that selling U.S.-origin goods and services abroad should be getting harder because of an economic slowdown in most of the rest of the world, and the surging U.S. dollar – which reduces their price competitiveness abroad (and at home, for that matter, too).

The third quarter constant dollar trade deficit hit its lowest level since the third quarter of last year ($1.2675 trillion annualized), and the consecutive declines were the first since the stretch between the fourth quarter of 2019 and the second quarter of 2020 – that’s of course when the CCP Virus began ripping through the nation and triggering a short but deep economic slump.

In addition, this latest sequential narrowing of the price-adjusted trade gap was the biggest in relative terms (10.94 percent) since the second quarter of 2009, when the economy was still mired in the Great Recession produced by Global Financial Crisis.

As a result, the real trade deficit as a share of constant dollar GDP sank to 6.36 percent – its lowest level since the second quarter of 2021 (6.16 percent). And the drop in this ratio from the 7.19 percent it reached in the previous quarter (11.54 percent) was the biggest also since the second quarter of 2009 (17.89 percent).

Trade’s contribution to third quarter growth was noteworthy as well. By generating 2.77 percentage points to the total quarterly after-inflation GDP increase of 2.54 percent annualized, it bolstered the economy by the greatest amount in absolute terms since the second quarter of 1980 – when it increased constant dollar GDP by 3.99 percentage points during a stretch when the economy shrunk overall by 5.48 percent at an annual rate. (As with any element of GDP, the trade contribution can be greater than the overall growth rate when other elements decrease.) 

Another way to look at this development:  All else equal, without this trade boost to growth, the economy would have shriveled by 0.23 percent at annual rates in the third quarter, and by the most influential measure, the recession would still be on.  

But again, it’s pretty standard for the trade to support growth during a contraction. Therefore, it’s also worth observing that its latest role during an expansion quarter was the biggest since the third quarter of 1980, when it added 2.96 percentage points to that period’s 2.66 percent annualized rebound.

Nonetheless, this trade contribution to growth was far from the biggest on record in relative terms. (This statistical series reports quarterly data going back to 1947.) For example, during the second quarter of this year, the decline of the trade deficit added 1.16 percentage points of growth while the economy contracted by 0.58 percent in real annual terms.

Moreover, it’s crucial to keep in mind that the third quarter’s trade deficit was still the fourth largest ever. (These quarterly data go back to 1947, too.) And it’s fully 52.98 percent higher than its level in the fourth quarter of 2019 – the last full quarter of data before the CCP Virus began roiling and warping the economy.

That third quarter export increase that helped the overall trade deficit shrink hit 3.43 percent – rising from $2.5619 trillion at annual rates in the second quarter to $2.6032 trillion. The result was a new all-time high. (The old record was the $2.5823 trillion annualized level in the first quarter of 2019.) This second straight quarterly improvemet in overseas sales of goods and services also finally pushed them above their immediate pre-pandemic level – by 1.22 percent.

On the import side, after setting five straight quarterly records, U.S. inflation-adjusted purchases of foreign goods and services sank by 1.78 percent sequentially in the third quarter, from $3.9475 trillion at annual rates to $3.8772 trillion. In fact, this quarterly retreat was the first since the second quarter of 2020, when the pandemic was spreading and depressing economic activity rapidly.

Yet this after-inflation import total was still the third highest on record, and the level of these total purchases remains 13.88 percent higher than in the immediate pre-pandemic fourth quarter of 2019.

Goods trade dominates U.S. trade flows and helped the total constant dollar deficit decrease by falling 9.51 percent sequentially in the third quarter, from $1.5846 trillion at annual rates to $1.4339 trillion. This second straight narrowing brought the goods deficit to its lowest level since the third quarter of last year $1.4144 trillion.

The improvement, moreover, was the biggest in percentage terms since the 12.63 percent plunge in the second quarter of 2009, when the economy was still mired in the Great Recession that followed the Global Financial Crisis.

Yet the goods trade deficit remains 48.57 percent above its level in that immediate pre-pandemic fourth quarter of 2019.

Meanwhile, the longstanding services trade surplus advanced by 7.43 percent in constant dollar terms, from $149.4 billion at annual rates to $160.5 billion. The increase in this sector followed two straight sequential drops in this surplus, and reflecting the outsized CCP Virus hit taken by this sector, is still down 31.93 percent since just before the pandemic’s arrival.

Real goods exports set their third consecutive record in the third quarter, growing 4.04 percent, from $1.8249 trillion at annual rates to $1.8986 trillion. These foreign sales are now 6.27 percent higher than in the fourth quarter of 2019.

After-inflation goods imports dipped for the second straight time, and by 2.26 percent – from $3.4095 trillion annualized to $3.3325 trillion. These purchases are still up 16.80 percent since just before the pandemic’s arrival.

Services exports in the third quarter advanced for the ninth straight time – climbing 2.03 percent, from $709.5 billion at annual rates to $723.9 billion. Yet they remain 7.99 percent below those pre-CCP Virus fourth quarter, 2019 level.

Services imports edged up by 0.59 percent in the third quarter. This sixth straight increase, from a $560.1 billion annualized level to $563.4 billion, brought them to 2.25 percent above their fourth quarter, 2019 level.

The big concern hanging over the good GDP news is the economy’s continued dependence on the massive stimulus provided to households and businesses during the pandemic era by Presidents and Congresses, and by the Federal Reserve – even though consumers are steadily spending down their windfalls. (See this post for the key consumer finance data.) That means that more towering inflation will be with Americans for many more months unless government policies change dramatically.

But however good the trade deficit and growth quality news, wild cards and potential headwinds and crosswinds still abound. Among them: the growth slowdown that’s coming as tighter Fed monetary policy works its way through the economy, to continuing economic woes in the major markets for U.S. exports, to the ongoing dollar surge, to the distinct possibility that the Fed will chicken out on the inflation-fighting front, and that the rest of the government will want to juice consumer spending power again if recession fears return. The last two developments, of course, could well draw in disproportionate amounts of imports, and as the next national election approaches, the odds that they play out seem certain to grow.  

(What’s Left of) Our Economy: Is the U.S. Trade Deficit’s Latest Dip More than Recession-y?

Tags

CCP Virus, China, coronavirus, COVID 19, economic growth, exports, GDP, goods trade, gross domestic product, imports, inflation-adjusted growth, real GDP, real trade deficit, recession, services trade, supply chains, Trade, trade deficit, Ukraine War, Zero Covid, {What's Left of) Our Economy

Although yesterday’s official figures show that the U.S. economy has now shrunk for the second straight quarter, the nation’s chronic and immense trade deficit played a diametrically different role in producing the final results. Whereas during the first quarter of this year, the trade gap’s widening was the difference between expansion and contraction of the gross domestic product (GDP – the standard measure of the economy’s size), during the second quarter (at least according to the new advance figures), its narrowing kept the drop in GDP from being considerably worse.   

The tumble of 0.94 percent at annual rates revealed in GDP after inflation (the most widely followed measure, and the GDP gauge that will be used throughout this post unless otherwise specified) came on top of a 1.58 percent decrease in the first quarter. As many have observed, two consecutive quarters of real GDP decline has long been a common definition of a recession.

This time around, however, a 4.53 percent fall-off in the inflation-adjusted trade shortfall, from a record $1.5447 trillion at annual rates to $1.4747 trillion, generated 1.43 percentage points of sequential growth in the second quarter. Although the new deficit was still the second biggest on record, the improvement prevented the quarter’s GDP drop from reaching 2.37 percent – which would have been the worst such performance since the nearly 36 percent crash dive recorded between the first and second quarters of 2020, when the CCP Virus pandemic and its impact on the economy were at their worst.

This year’s second quarter, moreover, marked the first time that America’s trade flows had added to growth, and the biggest such contribution in absolute terms, since that spring of 2020, when the pandemic and related mandated and voluntary curbs on economic activity greatly depressed U.S. imports. In relative terms, the second quarter’s trade contribution to growth was the best since the second quarter of 2009, near the end of the Great Recession that followed the global financial crisis. During that quarter, real GDP sank at an annual rate of 0.68 percent, but trade generated 1.53 percentage points of growth.

By contrast, during the first quarter, the trade deficit’s expansion subtracted a whopping 3.23 percentage points from the change in GDP – which turned what would have been a 1.65 percent sequential increase into that 1.58 percent shrinkage.

The reduction in the trade deficit also enabled the shortfall to decrease as a percentage of the entire economy from the first quarter’s all-time high of 7.83 percent to 7.49 percent. Further, the 4.34 percent sequential decrease represented by this progress was the biggest since the 9.45 percent decline in the fourth quarter of 2019 – just before the pandemic arrived state-side in force.

At the same time, at 7.49 percent of real GDP, the second quarter trade deficit was still the second highest ever, and since that immediately pre-pandemic-y fourth quarter of 2019, the trade shortfall has ballooned by 73.99 percent. As of the first quarter, it had swollen during this period by 82.24 percent.

Ordinarily, the reasons for this trade deficit decline would be a clearcut positive:  Even though the gap usually narrows as the economy weakens, it stemmed from  total exports (counting goods and services) advancing much faster than the much larger amount of imports. But as the nation and world are still in the CCP Virus and in the middle of the Ukraine War, with all the supply chain turbulence they’ve both brought on and will surely keep bringing, drawing strong conclusions still seems unusually hazardous.   

Those total U.S. exports improved by 4.22 percent on quarter, from $2.3613 trillion at annual rates to $2.4410 trillion – the highest such total since the $2.5533 trillion recorded in the fourth quarter of 2019, just before the pandemic hit the U.S. economy. The results were especially encouraging since total exports fell sequentially in the first quarter (by 1.23 percent), and given the global economic slowdown and the dollar’s strengthening to roughly 20-year highs versus nearly all currencies. This move in and of itself put U.S.-origin goods and services at a price disadvantage versus foreign competitors the world over.

Combined goods and services exports are now down just 3.61 percent since that fourth quarter of 2019, versus the 7.52 percent calculable last quarter.

Total imports inched up just 0.76 percent, although the new $3.9357 trillion annualized level did amount to a sixth straight record and an eighth consecutive quarterly increase. These purchases have now climbed by 15.37 percent during the pandemic era, versus the 14.85 percent calculable last quarter.

The goods trade deficit, meanwhile, declined by 3.96 percent sequentially, from the first quarter record total $1.6572 trillion annualized to $1.5916 trillion. This drop was the first since the peak pandemic-y second quarter of 2020, and the biggest since the 6.52 percent shrinkage in the fourth quarter of 2019. The goods trade gap, consequently, has grown by 48.55 percent since the end of 2019, as opposed to the 54.68 percent calculable last quarter.

Goods exports in the second quarter rose 3.69 percent from the first quarter’s $1.7577 trillion at annual rates to a new record $1.8225 trillion – surpassing the previous all-time high of $1.8046 trillion set in the first quarter of 2019. These new results also mean that goods exports have finally exceeded pre-pandemic levels (by 2.24 percent). After the first quarter ended, they were still down 1.39 percent since the fourth quarter of 2019.

Goods imports, however, recorded their first quarterly decrease since the third quarter of 2021 – though only from a worst ever $3.4149 trillion annualized to $3.4141 trillion. But these imports are still 19.63 percent higher than in that immediate pre-pandemic fourth quarter of 2019.

The services trade surplus improved by 8.60 percent between the first and second quarters, from $109.3 billion at annual rates to $118.7 billion. Reflecting the unusually hard hit delivered by the pandemic to the service sector, however, this surplus is still 47.64 percent lower than its level just before the virus began seriously affecting the U.S. economy. That is, it’s been nearly cut in half.

Services exports in the second quarter actually increased sequentially for the third straight time. And the 5.56 percent advance, from $631.5 billion annualized to $666.6 billion was the strongest since the 5.83 percent jump in the fourth quarter of 2006. Nonetheless, services exports remain 13.84 percent off their immediate pre-pandemic level, versus the 18.38 percent calculable last quarter.

Services imports are now back above their pre-pandemic levels, too (by 1.65 percent), having risen 4.92 percent sequentially in the second quarter, from $522.2 billion at annual rates to $547.9. The improvement, moreover, was the fastest since the 7.80 percent recorded in last year’s third quarter.

As mentioned above, usually it’s unambiguously good news for both trade, and to a lesser extent, the entire economy, when the trade deficit diminishes because exports are up considerably faster than imports. It’s normally even better news when these kinds of results are delivered in challenging international and exchange rate environments. But with the Ukraine War and China’s Zero Covid policy still distorting U.S. and global trade flows and unlikely to end anytime soon, unbridled optimism is hard to justify. So like the Federal Reserve, RealityChek will remain data dependent as it tries to detemine the outlook for U.S. trade’s fortunes.

(What’s Left of) Our Economy: Continued Worsening Both for America’s Growth and its Trade Deficit

Tags

exports, GDP, goods trade, gross domestic product, imports, inflation, real GDP, real trade deficit, recession, services trade, Trade, trade deficit, {What's Left of) Our Economy

The final (for now) official U.S. report on the change in the economy’s output (gross domestic product, or GDP) during the first quarter of this year came in this morning, and just as the estimates of sequential shrinkage have gotten slightly worse since the initial read two months ago, so did the estimates of the nation’s trade deficit. As known by RealityChek regulars, that’s one of the worst combinations of economic data possible.   

And although the growth-cutting impact of these swelling trade shortfalls remained unrevised from the 3.23 percentage points recorded in the previous GDP read, it’s still bigger than the 3.20 percentage points estimated in the initial release, and sizable by any measure. Indeed, it was big enough to represent the difference between quarterly growth and quarterly contraction.

First, the overall GDP results. The Commerce Department now judges the economy to have shriveled by 1.58 percent at annual rates after adjusting for inflation. (The measure most widely followed.) That’s worse than both the second estimate (a 1.52 percent decline) and the first read (1.42 percent). This confirmation of first quarter contraction, moreover, means that the economy has now officially proceeded halfway toward a recession according to the most common definition: two straight quarters of real GDP decreases.

The trade gap has widened similarly – from the initially reported inflation adjusted and annualized $1.5417 trillion to $1.5435 trillion to today’s $1.5447 trillion.

This total amounts to a new all-time quarterly high, and the seventh straight such record registered. The real growth bite of this deficit wasn’t a record in absolute terms. That distinction belongs to the third quarter of 2020. But that period’s 3.25 percentage point hit to inflation-adjusted GDP came in the context of that quarter’s roaring comeback from the short but deep CCP Virus-induced downturn from earlier that spring. So the trade deficit’s impact was barely noticed.

Without such a big (14.41 percent) sequential jump in the trade deficit, the economy would have expanded by 1.65 percent at real annual rates in the first quarter – no great shakes by any means, but certainly better than a slump.

In addition, on a relative basis, the 3.23 percentage point drag on first quarter growth stayed the biggest ever – slightl eclipsing the 3.22 percent drag on the 1.53 percent total real GDP contraction way back in the second quarter of 1982.

Moreover, the quarter-to-quarter swing in the trade gap’s growth impact – from a 0.23 percentage point hit during the fourth quarter – was the biggest since mid-2020, when the 1.53 percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter.

And for good measure, the sequential swing in the trade gap’s absolute growth impact between the fourth quarter of 2020 – when a small worsening of the inflation-adjusted trade deficit subtracted just 0.23 percentage points from growth – to the first quarter remained the biggest since mid-2020. Then, a percentage point boost to growth in the second quarter became a 3.25 percentage point subtraction in the third quarter. But again, that latter figure came during a quarter of 30.19 percent annualized constant dollar growth!

The newest increase in the price-adjusted quarterly trade deficit also generated a new record in terms of its share of the overall economy. As of today, the real trade gap represents 7.83 percent of inflation-adjusted GDP – compared with the 7.82 percent calculable last month.

One bottom line: The after-inflation trade deficit is now 82.24 percent higher than in the fourth quarter of 2019 – the last quarter before the CCP Virus’ arrival began seriously affecting and especially distorting the economy. That’s not so far from a doubling.

Today’s GDP report showed that total inflation-adjusted exports fared a little better in the first quarter than first estimated. The new $2.3613 trillion inflation-adjusted annualized figure is 0.15 percent higher than the second read’s and 0.29 percent above the first’s.

Yet these overseas sales are still down 1.23 percent from last year’s fourth quarter and fell sequentially for the fourth time in the nine quarters that have passed since the first pandemic-affected quarter (the first quarter of 2020). Further, these exports are still 7.52 percent lower than immediately before the virus’ arrival in force, in the last quarter of 2019.

The total first quarter real imports numbers, however, have continued to rise, too. This morning’s constant dollar annualized figure of $3.9060 trillion was up 0.12 percent from the second read and 0.25 percent from the first.

As a result, the first quarter remains the new record-holder for quarterly total after-inflation imports, and the all-time high is still the fifth in a row. The sequential increase of 4.42 percent, moreover, is still the biggest since the 17.29 percent explosion between those second and third quarters of 2020, and total price-adjusted imports are now up 14.85 percent since that last pre-pandemic fourth quarter of 2019.

Interestingly, the new GDP report also confirmed that the nation’s trade in goods has been improving modestly while trade in services – not only the economy’s biggest sector, but the one hit hardest by the pandemic – has been deteriorating.

In this vein, the final estimate of the real goods trade deficit came in at $1.6572 trillion at annual rates. That figure is 0.65 percent smaller than that in the second GDP report, and 0.68 percent less than the initial result.

At the same time, the new total is still a seventh straight record, and the increase of 12.88 percent over the $1.4681 trillion gap reported for the fourth quarter of last year remained the biggest sequential increase since the 20.40 percent surge between the second and third quarters of pandemic-ridden 2020. Moreover, the new first quarter total is 54.68 percent higher than the $1.0714 trillion during the fourth quarter of 2019 – the last data quarter before the CCP Virus began playing havoc with the economy and economic data.

By contrast, the new estimate shows that the chronic U.S. services trade surplus keeps decreasing. The latest figure for the first quarter – $109.3 billion in real terms at annual rates – was fully 8.15 percent lower than the second estimate and 9.59 percent smaller than the first. Due to this third estimate, the services surplus fell by 9.88 percent from the fourth quarter’s $120.1 billion real annualized total, and has been cut by more than half (51.79 percent) from its $226.7 billion level in the immediate pre-pandemic fourth quarter of 2019.

The goods and services trade divergence has marked both the export and import performances comprising the above trade balance figures. For goods exports, the final estimate for the first quarter ($1.7577 trillion annualized and adjusted for inflation) was up 0.33 percent from the second estimate and 0.54 percent from the first.

But real goods exports still dropped by 1.97 percent between the last quarter of 2019 and the first of 2022, this sequential fall-off (like that for total real exports) remains the fourth in the nine pandemic-affected quarters, and it’s still the biggest such decrease since that registered between the first and second quarters of pandemic-y 2020 (23.08 percent). And since the fourth quarter of 2019, goods exports are still off by 1.39 percent.

By contrast, constant dollar goods imports results have come down during the first quarter – though not in a straight line. The new total of $3.4149 trillion on a real, annualized basis is 0.15 percent below the second read but just 0.05 percent below the first.

Today’s real goods imports figure, though, was also the second straight all-time high and a 4.72 percent increase over the fourth quarter figure – the greatest sequential increase since the 6.80 percent rise in the fourth quarter of 2020. These imports, moreover, are now 19.66 percent above their fourth quarter, 2019 level.

The after-inflation services exports estimates, however, kept weakening in the first quarter GDP reports. The $631.5 billion real annualized total reported today was a 0.61 percent improvement over the fourth quarter’s $627.7 billion, the second straight quarterly gain, and the best quarterly result since the $695.3 billion recorded in he first quarter of 2020.

But it was down 0.28 percent from the second read and 0.33 percent from the first. and since the final pre-pandemic fourth quarter of 2019, these exports have plunged by 18.38 percent.

As for the price-adjusted services imports estimate, it grew quickly in the first quarter. The third read of $522.2 billion at price-adjusted annual rates is 1.54 percent higher than the second and 1.85 percent above the first. And these purchases were 2.88 percent higher than the fourth quarter total.

This final (for now!) first quarter after-inflation services imports figure is the highest since the $547 billion figure for the fourth quarter of 2019. But since then, these purchases have sagged by 4.53 percent.

A glass-half-full type might point out that this final first quarter GDP report — and the last few official monthly trade releases, might represent peak trade deficit for the United States.  But a glass-half-empty type tight counter that the main reason could be an economic slowdown and possibly imminent recession that would primarily — and finally — depress Americans’ importing and other spending. That’s hardly the ideal formula for narrowing the trade gap and indebtedness it fuels.  But it’s one that seems unavoidable for now.