The economy grew at a 2.8 percent annualized rate in the third quarter, reports the Bureau of Economic Analysis, up from 2.5 percent in the second quarter and 1.1 percent in first quarter.
Meanwhile, personal consumption has steadily slowed down the past three quarters from 2.8 percent, to 1.8 percent, to 1.5 percent in the third quarter.
Why the contradiction? Consumer spending is usually thought to drive economic growth, not run contrary to it. So what gives?
“The acceleration in real Gross Domestic Product (GDP) growth in the third quarter primarily reflected a deceleration in imports,” among other items, the Bureau reports.
Which tells you much of what you need to know, since the trade deficit counts against the GDP. When the trade deficit narrows, economic growth is seemingly boosted, and when it increases, it detracts from reported growth. Sure enough, this year the trade deficit has dropped from $523 billion in the first quarter, to $509 billion in the second, and to $493 billion today.
Yet the slowdown of imports corresponds directly to the slowdown of consumer spending — Americans were buying less of everything. That is actually not a good sign going forward.
Shrinking trade deficits are often associated with recessions, as was the case both in 2001 and 2009, according to data compiled by the Federal Reserve. In fact prior to the last two recessions, the trade deficit was narrowing. It is predictive.
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Robert Romano is the Senior Editor of Americans for Limited Government.
9 comments
We need to print more money to prime the pump.
Lots more money, boost QE3 to $150B a month on the back end then to ensure we get “enough” this time we should pass another stimulus bill worth $1.75T (yes, trillion, we got to get to the “real money”) and piss it away on shovel read, enema ready and larceny ready projects. Not just here either, we got to spend that money overseas, underseas and above the seas. We got to spend, spend, spend like there is tomorrow or there won’ be.
(crap, someone is going to take that serious, I just know it)
We need to cut back on the federal money we give out to the red moocher states over and above what they contribute. The moocher states need some tough love to ween them off govt. welfare.
Be careful what you wish for, that unemployment check you get might be part of the moocher state casualties.
Aren’t the biggest moocher’s blue voters?
The trade deficit is narrowing for many positive reasons; one being U.S. manufacturing – natural gas production specifically.
Who cares? The deficit is unimportant.
I do believe that this Christmas shopping season might be a bust. Most that I know have been cutting back on things all year and nobody really seems all that excited about Christmas this year… well except for the gay couple down the street.
I am not an economist, and apparently, neither is Romano.
However, Jared Bernstein and Dean Baker are economists, and their 7 November 2013 op-ed in the New York Times could have informed Romano (and the rest of us) regarding trade deficits. Since nyt.com is a subscription site, I’ll exercise a little “fair use” to advance the discussion.
“Simply put, lowering the budget deficit right now leads to slower growth. But reducing the trade deficit would have the opposite effect. Not only that, but by increasing growth and getting more people back to work in higher-than-average value-added jobs, a lower trade deficit would itself help to reduce the budget
deficit.
“Running a trade deficit means that income generated in the United States is being spent elsewhere. In that situation, labor demand — jobs to produce imported goods — shifts from here to there.”
. . . .
“If we continue to run large, persistent trade deficits, we have no good choices. We can offset that exported demand with either bubbles or budget deficits. Or we can go austere and slog along with unacceptably high levels of unemployment and weak growth.
“But if we shift our focus from reducing the budget deficit to the trade deficit, we could make a big difference, not just in the national accounts, but in the lives of people for whom that unfavorable math has meant hardship for far too long.”
To sum up, a declining trade deficit is a good thing, something that will lead to higher employment.