Yesterday's improvement in the trade deficit to $40 billion from $57 billion a year ago would seem to be good news. Alas, it isn't, as it is being driven by a decline in exports. Year-over-year, the decline in exports accounts for 70% of the improvement. Of course, lower energy costs have helped on the import side. We have enjoyed an export boom, with growth in excess of 10% for the past 5 years. It is over, though:
In the past 4 months, exports have declined by 21%, which annualizes to 47%. Year-over-year growth in December was -8.5%. The level of exports has reverted back to what we last experienced in May 2007. We have some very tough comps ahead, and it isn't difficult to see that we will most likely endure a full year decline in excess of 10%. This will create additional drag on the U.S. economy, especially given that it has been a source of strength for the past many years.
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