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Thursday, April 12, 2012

Trade and the Economic Roller Coaster

February’s trade data continues to highlight the reality that we are all on an economic roller coaster, going up and down without getting ahead.

On exports, after growing from January to September last year, they were down in October and November. Growth resumed – albeit slow growth – in December and January. But in February, exports effectively experienced no growth compared to January. In fact, February exports stood at the same level as they were in September.

Given the economic troubles and concerns elsewhere, such as Europe, Japan, China, and Canada (some slowing), perhaps we should not be surprised about the lack of U.S. export growth.

But the bigger part of the trade story in February was the large drop in imports, with a decline of 2.7 percent.

Even more so than exports, it was an up-and-down story on a month-to-month basis when it came to imports in 2011. That bouncing-ball scenario has now continued into 2012, with January imports up and February imports down.

It is important to keep in mind that despite what’s being reported in the media, falling imports are not a positive for GDP growth. To the contrary, falling imports reflect a sluggish domestic economy that is experiencing poor consumer spending and/or capital spending.

Despite all of this, some still point to the decline in the trade deficit in February as an economic plus. Not only do the underlying numbers tell a different story, but a declining trade deficit usually comes with a slowing or recessionary economy. We saw that in 2008 and 2009, for example, and it makes sense when you understand the size of the U.S. economy and how imports tie back to domestic economic growth.

In recent times, trade has been critical to U.S. economic growth. The roller coaster to nowhere largely reflects the reality and continuing concerns about the overall economy. Rather than experiencing the robust growth we should during an economic recovery, we’re either inching ahead or simply running in place.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

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