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July 14, 2005
Maybe it won't last, but if you were looking for some sign of "improvement" in U.S. deficits, both government and trade varieties, yesterday was your day. First on the deficit on U.S. international trade in goods and services for May, from Bloomberg:
Record exports and a decline in oil prices helped the U.S. trade gap unexpectedly narrow to $55.3 billion in May, suggesting that trade gave a boost to quarterly economic growth for the first time since 2003.
The imbalance in goods and services trade dropped 2.8 percent from $56.9 billion in April, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey of economists called for no change from April. The dollar gained against the euro after today's report.
True, not everyone was ready to be that impressed. The New York Times had this rather confusing combination of headline and story:
May Trade Deficit Shows Slight Improvement
The nation's trade deficit shrunk markedly in May as a drop in oil prices offset increases in imports of other products, the government reported today.
Hmm. Maybe the headline writer was just taking the broader perspective...
"Despite the improvement in May, our trade deficit is still on track for a record breaking year," Mr. Hoffman said.
... or looking ahead, like this AP report from the Chicago Tribune:
The trade deficit fell in May, reflecting a rise in U.S. exports to the highest level in history and a temporary decline in foreign oil prices. But the improvement was likely to be short-lived, with oil prices again near record levels.
Reasonable points, and Brad Setser, for one, agrees. (So does Calculated Risk. And General Glut. And The Prudent Investor. And all of these are noticed by The Skeptical Spectator. Andrew Samwick doesn't disagree, shares my belief that sky won't fall as the inevitable deficit reversals take hold for good.)
If the trade report was not dramatic enough for you, maybe you were more impressed with the news on the government deficit front. From Bloomberg:
White House budget officials today cut their estimate for this year's deficit to $333 billion -- the first such decline since President George W. Bush took office -- citing rising tax receipts from job, income and corporate revenue growth.
The mid-year estimate is 23 percent lower than the Office of Management and Budget's February forecast of a $427 billion deficit for fiscal 2005 and will help Bush make the case that his economic policies are working and he is on track to fulfill his promise to cut the deficit in half by 2009.
There is a bit of a catch, of course...
The figure doesn't include spending for military operations in Iraq and Afghanistan, which are funded through special appropriations outside the regular budget process. Congress has authorized more than $300 billion for those wars since 2003.
... and if you insist, there is plenty to fuel your anxiety:
"It's good news for today, but I wouldn't go around popping champagne corks,'' said Bruce Bartlett, a former tax official under President George H.W. Bush.
The ex-Treasury Department official said a plunge in the deficit estimate may not last long because many baby boomers will begin retiring in 2008, placing more burden on government health programs, driving up costs.
"We're looking at serious long-term problems, even if the budget were balanced today,'' Bartlett said.
That, of course, was true during the presumed glory surplus years of the late 1990s as well.
The Capital Spectator counsels caution about the federal government deficit improvement, and says "even the Bush administration is staying cautious."
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