Is Export Demand Propping Up a Weakening Economy?
Dean Baker takes notice of the following headline in a New York Times Story:
Sales Abroad Propping Up the Economy
The story later states:
The trade deficit narrowed in February, to $58.4 billion from a revised $58.9 billion in January, the Commerce Department reported. That was the smallest monthly deficit since November. Exports and imports both fell, but imports more than exports, mainly because of a midwinter drop in oil prices. The export decline, although involving such basic items as aircraft and machinery, struck Brian A. Bethune, an economist at Global Insight, as “anomalous, given that the fall in the value of the dollar makes a lot of our goods more competitive.” Imports, which totaled $182.43 billion in February, continued to swamp exports at $124.99 billion that month. But over the most recent year, the dollar value of exports has risen nearly twice as much as the dollar value of imports.
Dean asks us to look at real exports. It does seem exports were higher during the latter months of 2006 than they were earlier in the year but recently real exports have declined. But let’s look at real exports since 2000 – both in absolute terms as well as a percent of real GDP. From 2000QIII to 2002QIV, real exports fell from $810 billion per year to $702 billion per year contributing to both the trade deficit and the weakness in the overall economy. For the next two quarters, real export growth was less than real GDP growth with the ratio reaching 6.9%. But as real GDP growth picked up, real export growth has exceeded real GDP growth with the ratio of exports to GDP reaching 8.3% as of 2006QIV, which exceeded the ratio of real exports to real GDP as of 2000QIII.
I don’t understand the title of this New York Times article either as real export demand has slipped over the past couple of months. But let’s hope this trend reverses itself so we can enjoy an export-led boom.