Friday, August 27, 2010

New GDP Report & Its Trade Data

The revised estimate of Q2 GDP, a broad measure of U.S. economic growth, was released this morning by the Commerce Department. The report was anything but rosy with almost all engines of economic growth either tapering off or growing well below their intended targets. Worse still, because everything from business and consumer spending to the trade imbalance remain weak, it's likely that this will continue to put pressure on the unemployment rate.

The unemployment rate runs countercyclically with a lag, meaning that when the economy is starting to exit a deep recession, the rate can still increase for awhile before it begins to decrease, so we are potentially looking at rates of unemployment near 10%. For some historical perspective, in 1933, in the midst of the Great Depression, unemployment stood at 24.9%! Now, of course, the U.S. economy is a lot larger but this "Great Recession" is indeed still a lingering problem.

However, what worries me the most from the new data is the new, bigger trade imbalance. The trade imbalance (or deficit) occurs when you import more than you export.  Ideally, you would like to export more than you import because goods produced in your country and shipped elsewhere count positively in your nation's GDP report. In Q2, the Yahoo! article points out that, "imports surged 32.4 percent, the most since 1984. That overwhelmed a 9.1 percent increase in exports." This has been the trend for a long time now and likely will continue to be as the U.S. relies less on manufacturing and buys cheaper goods elsewhere. While this is great for international trade, it just means that other areas of the economy will have to make up for this figure in the GDP calculation - that doesn't appear to be happening just yet.

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