Monday, March 15, 2010

Export update

Here's an update to a chart that shows that goods exports are roughly correlated to outbound container shipments from the ports of Los Angeles and Long Beach. For a long time it's been saying that goods exports (which factor into GDP) were on the rise, given the strong rebound in container shipments. The signal seems to have weakened a bit in the past six months, with container shipments running at a fairly constant rate, and exports slipping a bit in February. But abstracting from the recent weakness, goods exports, and exports in general, have grown very rapidly (more rapidly than ever before) since bottoming last April, as shown in the next chart:

Although the trade picture has become somewhat less bullish in recent months, it is far from becoming a negative. Both exports and imports are still likely to be in a rising trend, despite monthly fluctuations. As the last chart shows, the globalization trend, in which cross-border trade for most countries becomes an increasingly large fraction of overall growth, is quite powerful and thus is unlikely to be derailed.

Many observers are cheering the reduction in the trade deficit that is apparent in the narrowing in the gap between the lines of the last two charts. A reduced trade deficit adds to the calculation of GDP, but a narrowing of the deficit is not always a good thing. Most of the narrowing this time has come from a big reduction in imports. Part of that reduction owes to the almost 50% decline in oil prices, which is good, but most of it comes from a big reduction in foreign capital inflows as the world's investors have curbed their enthusiasm for investing in the U.S. (we can only have a trade deficit to the extent we have a capital surplus). Thus, while the shrinkage of the trade deficit adds to the calculation of current GDP, it also reflects a diminished capacity for future growth due to a reduction in foreign investment. The brightest part of the trade picture is the evidence that exports are growing strongly (up at an annualized 21.5% in the past six months) and remain on an upward trend. This reflects not only strength in our ability to produce, but also strength in demand from the rest of the world. The U.S. is not likely to be the world's engine for growth this time around, given our current monetary and fiscal policies, so it's very encouraging to see that the rest of the world has a healthy appetite for our goods and services.

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