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

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Thursday, November 10, 2011

International Trade

International Trade is one of those justifiably influential reports.  Even if you've never paid attention to it before, you've heard of it.  Of course, if you don't follow the economic indicators, you've probably heard of it under a different name:  the US trade deficit.  And that's exactly what International Trade is:  the difference in total dollars between what we import and what we export.  In theory, it could be a trade surplus as well, but that hasn't been seen since 1975 (when our trade surplus was $12.5 billion).
Why is this influential, though?  Well, it directly impacts gross domestic product, which is the sum of government spending plus private sector spending plus consumer spending plus trade surplus.  So, if we have a shrinking trade deficit, that directly implies a growing GDP.  Of course, if the trade deficit expands, that directly implies a shrinking GDP.  And since GDP is used as a direct measure of the overall health of our economy, that means a growing trade deficit is a bad thing[1].
The August trade deficit was reported at $45.6 billion.  For September, the Econoday-surveyed analysts are expecting to see it grow in size to a level of $46.3 billion, with a range between $44.2 billion and $49.5 billion.
Of course, that's just the analyst expectations.  For the actual figures we turn to the U.S. International Trade In Goods and Services Report, where we learn the following:
  • The August trade deficit was revised to only $44.9 billion, which is a good thing (it got smaller).
  • The September trade deficit (technically the goods and services deficit) is calculated at $43.1 billion, which handily beats expectations.
That would seem to be a positive trend, if you can rationally call two months of data a trend.  Let's hope we see this continue in the coming months.
[1]  There are probably economists out there with elegant mathematical theories that would be willing to argue that it actually isn't a bad thing.

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