Thursday, June 10, 2010

The trade picture looks bright

Exports fell a bit in April, but upward revisions to past data meant that the April figure was still higher than the previously reported March number. In any event, month-to-month variations in the data are to be expected; the important thing is the trend, and that is solidly positive. Exports have been growing at a 20% annualized pace for the past six months, and have now recovered 60% of the decline that occurred from July '08 through April '09. Trade is getting back on track, and smartly so. Strong growth in exports adds significantly to GDP growth, and strong growth in imports reflect a rebound in the health of U.S. consumers.

That the trade deficit persists is of no particular concern. It's less than it was a few years ago, but that has a lot to do with the lower price of crude oil. It's important to understand that the difference between the import and export of goods and services is completely offset by a corresponding flow of capital. The U.S. deficit in tradeable goods and services is matched by an inflow of foreign capital that ends up purchasing our assets (e.g., stocks, bonds, bank CDs, real estate). If foreigners were to decide they no longer want to purchase our burgeoning Treasury debt, then they would have no choice but to spend their export earnings on stocks, real estate, bank CDs, or to buy more of our exports. It would be better, of course, if the federal government weren't spending and borrowing so much, but that only means our recovery will be weaker than otherwise (because the government spends money less efficiently than the private sector). It doesn't mean that we are at the mercy of foreign lenders.

A rapidly expanding trade sector is an excellent sign of U.S. health, and it also means that the economies of other countries are also on the mend.

No comments: