Import-export data released this week by the Census Bureau calls into question the long-term strength of the US economy.
The United States’ monthly trade deficit increased by 2.6 percent in February to $47.1 billion, the agency reported on Tuesday.
A three-month moving average of the gap—a mean calculated to give a more clear reading of trends—was also up in February by 2.6 percent, and up by 7.7 percent on an annual basis.
The data shows economic activity in the US passing over job creators. It also shows downward pressure being applied to the value of the US dollar, even as oil prices reached a 12-year low.
It casts something of a shadow over the US economic recovery. Earlier this week, President Obama touted post-recession growth as strong, after the latest Labor Department employment report showed the US added 215,000 jobs in March.
“That means our businesses extended the longest streak of private sector job creation on record–73 straight months, 14.4 million new jobs, unemployment about half of what it was six years ago,” he said.
Reuters noted that Tuesday’s trade deficit data release “prompted economists to cut their first-quarter gross domestic product growth estimates by as much as half a percentage point to as low as a 0.4 percent annualized rate.”
“They see trade subtracting at least seven-tenths of a percentage point from GDP growth in the first quarter, up from 0.14 point in the fourth quarter,” the wire service said.
A measure of wealth generated in a country, GDP is calculated, in part, by subtracting a country’s imports from its exports. A percentage point increase in annual GDP should add about 1.2 million jobs to the US economy, according to academic research.
Countries are typically restrained from running constant trade deficits by international currency markets. Foreign exchange rates are determined by demand and supply of a country’s currency. Long-run net-importation, in that framework, causes a country’s currency to depreciate, making its own exports more affordable on global markets.
But that self-correcting mechanism doesn’t really apply to US labor markets currently, with the greenback used as the world’s de facto reserve currency, and the denomination by which crude oil is priced. Foreign countries’ demand for US dollars is driven by a need that has nothing to do directly with the employment of American workers.
The Congressional Research Service (CRS) noted in 2012, for example, that the global financial crisis in 2008 caused the dollar to appreciate by about 11 percent–around the same time it triggered the Great Recession in the US. Problems around the world caused American financial assets to become relatively more attractive ways to store wealth.
“[U]ncertainty about global economic and financial conditions caused a substantial ‘flight to quality’ by foreign investors that sharply appreciated the dollar,” CRS said.
The United States has not posted an annual trade surplus since 1973. Deficits sky-rocketed in the 1980’s—to break the $100 billion threshold for the first time–under the hardline laissez-faire economic policies of Ronald Reagan.
