"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Wednesday, May 11, 2011

US International Trade In Goods and Services

It's time for what we optimistically call the trade balance and what we realistically call the trade deficit.  This is a measure of how much the US exports, how much it imports, and what the net difference is between the two.  If the net is positive, we have a trade surplus.  If the net is negative - and it usually is - we have a trade deficit.  For February, we had a trade deficit of $45.8 billion, which missed expectations but was still smaller than January's deficit.
So what's the big deal about a trade deficit, anyway?  Well, a trade deficit has a substantial impact on GDP.  Gross Domestic Product is the sum of private domestic consumption plus gross private domestic investment plus government spending plus the current trade balance.  If the trade balance is a trade deficit, it is subtracted from GDP and causes slower economic growth.
Right now, the Econoday-surveyed analysts are expecting to see the trade deficit expand to $47.7 billion in March.  And the reality?  Well, according to the joint US Census Bureau and US Bureau of Economic Analysis press release, the trade deficit exceeded all but the most pessimistic of analyst expectations and ballooned to $48.2 billion.

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