Economist’s Reactions To The Trade Deficit News

From the WSJ Real Time Economics blog, here are some selected comments from economists concerning the decline in the trade deficit. Go to the site for a complete review.

The simple story behind February’s trade figures is that exports stopped falling while imports continued to plunge. Export volumes showed their first increase since July. Most major categories were up, though the biggest gains were in consumer goods (mainly pharmaceuticals), autos, and food and beverages. The export improvement is good news, and indicates that the steepest export declines are behind us. But given the weak state of overseas economies it is too early to be thinking about a sustained export rebound. The U.S. recovery will not be export-led. –Nigel Gault, IHS Global Insight

The main impetus in the month was an ongoing steep decline in imports as a consequence of weak domestic final demand and concerted efforts to pare inventories. Exports actually rose in the month, although this was probably more statistical noise than anything else after several months of massive declines. Given what is happening in the rest of the world, it is highly unlikely that the February result represents the start of a turnaround in demand for U.S. goods abroad. –Joshua Shapiro, MFR Inc.

The first-quarter GDP puzzle just got even more interesting with the release of the February trade data. The collapse in imports thus far in the first quarter reflects both weakness in final U.S. demand and the massive credit-related disruption to trade flows (over the last three months both import and export volumes have fallen at a 38% annualized rate). However, because U.S. imports are much larger in absolute value than U.S. exports, these declines have resulted in a sharp narrowing in the trade deficit, which will likely add to growth in the first quarter. –RDQ Economics

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