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September 12, 2006
How To Interpret the Trade Deficit?
This month’s data suggests that the economy hasn’t slowed enough to end all import growth. Non-oil goods imports rose to $130b. Barring the recession Nouriel is now forecasting, I would expect non-oil imports to continue to trend up over the course of the year.
... but Menzie concludes...
One noteworthy point is that the non-oil trade deficit has continued its stabilization in nominal terms (as mentioned in my post on the May 2006 trade figures as well as this post based on the NIPA data), so in terms relative to GDP, it has fallen.
The [Bloomberg article] cites the continued strength of the consumer. The month-on-month figures don't support that contention -- although the quarter-on-quarter growth rates would indicate some growth.
... and CR seems to agree:
It appears the trade deficit, excluding petroleum, might have stabilized... This might indicate a slowing U.S. economy and is consistent with a slowdown in the U.S. housing market.
A little help? Not from the expert commentary in the MSM. The Wall Street Journal has a lot of folks doing arithmetic:
... The July real-goods trade deficit widened compared to its [second quarter] average, suggesting that net exports will subtract modestly from [third quarter] GDP.
--Steven Wood, Insight Economics
... While it seems reasonable to think that the upward trend in exports will resume in August and September, the wider July gap makes it more likely that the trade accounts will exert a bit of a drag on [third-quarter] GDP growth for the first time this year.
--Nomura Economics Research
Based on the much-larger-than-expected deterioration in the overall trade gap, we now see net exports subtracting 0.4 percentage point from [third quarter] GDP growth, down from our prior estimate of a 0.3 percentage point addition....
--Morgan Stanley U.S. Economics
Well, all else fixed I guess that's so, but there is also this, from the aforementioned Bloomberg article:
A growing appetite for Japanese electronics and clothing from China suggests American consumers are still spending even as the housing market sags, and that the U.S. economy needn't rely on foreign demand to fuel the expansion...
"As long as the consumer is relatively healthy, we're going to see a wide trade deficit,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut.
And, presumably, that would be the sign of a relatively healthy economy. Is it possible we should be adding points back on to our growth forecasts?
What does this all add up to? Pretty simple,really. The economic environment is a total murk, and everyone is just guessing. In other words, nothing unusual.
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