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Home Publications Blogs Beat the Press The Trade Deficit Jumps While the Politicians Play Debt Ceiling Poker

The Trade Deficit Jumps While the Politicians Play Debt Ceiling Poker

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Wednesday, 13 July 2011 15:15

The Commerce Department reported that the trade deficit jumped in May to $50.2 billion from $43.6 billion in April. The monthly data are erratic, but this is definitely bad news. This means that growth in the U.S. economy is likely to be very weak in the second quarter. (Measured in constant dollars, the deficit increased by $3.9 billion.) It does not look like trade is about to become a major driver of growth and jobs.

This is also bad news for fans of income accounting. If we have a trade deficit, then national savings must be negative. That means either or both negative private savings or negative public savings (e.g. budget deficits). That's the rules -- there is no way around this one.

But this one didn't get much attention in the media. I couldn't find the NYT piece on the deficit. The Post had a piece on the May trade numbers, but it worked hard to get us the good news:

"But rising imports aren’t necessarily bad, because they can indicate the overall direction of demand for goods and services. Some analysts see crude oil, which accounted for more than two-thirds of May’s increase in imports, as a positive read for the economy.

'It indicates demand is stronger,' said Linda Duessel, equity market strategist at Federated Investors in Pittsburgh. 'That’s a good thing here in the U.S.'"

Actually, most of the increase in oil imports came about as the result of higher oil prices, not the need for more oil to fuel the economy. While the volume of oil imports in May was down from its April level, it is more than 9 percent below the average for the first quarter of the year.

Comments (1)Add Comment
Income accounting.
written by Ralph Musgrave, July 16, 2011 12:20

I’m suspicious about mixing “trade deficit” with “income accounting”. Income accounting deals strictly in dollars (or other currencies), and everything should balance “double entry book keeping style”.

In contrast “trade deficit” as I understand the word refers to measuring the value of goods leaving and entering a country. These goods may be paid for months before or after the actual movement of such goods. Moreover, as part of multinationals’ habit of fiddling their taxes, the invoice price of such goods often bears a tenous relationship to the real value.

O have I missed something?


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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