A big drop in imports of consumer goods, especially from China, led to a significant decline in the March trade deficit. (Here’s a link to the full report from the Bureau of Economic Analysis: http://www.bea.gov/newsreleases/international/trade/2013/pdf/trad0313.pdf.)
This would be good news if it were driven by a shift to domestic manufacturing of these products. But it’s not. All other economic indicators have been pointing to a manufacturing sector that has slowed, or is even declining. (For example, yesterday’s ADP employment report showed a loss of 10,000 manufacturing jobs in April.)
Most categories of imported goods slowed in March, led by a decline in consumer goods of 7.5%, or by $3.4 billion, accounting for most of the decline in the trade deficit. And imports from China plunged by $5.5 billion from February, accounting for all of the decline in the trade deficit and then some.
The overall trade deficit fell by $4.8 billion in March to $38.83 billion. Here’s a chart of the overall balance of trade since January, 2010, when President Obama set a goal of doubling exports in five years: Balance of Trade. As you can see, the trade deficit has been on a declining trend since January of last year. There are basically only three reasons why a trade deficit declines: 1) the economy is shifting to domestic production, or 2) exports are rising faster than imports, or 3) the economy itself is in decline.
We’ve already ruled out reason number 1. Aside from a slight shift toward domestic auto production, there is no other shift toward domestic manufacturing. And exports are definitely not increasing. In fact, overall exports fell in March and are even lower than they were in March of 2012. Overall exports have now lagged the president’s goal for 20 consecutive months, and now lag that goal by $38.5 billion – the largest shortfall yet. In fact, if exports had grown at the rate required to keep pace with the president’s goal, our trade deficit would have been only $0.3 billion in March. Here’s the chart: Obamas Goal to Double Exports.
Of course, the real goal is to double exports of manufactured goods in five years, since that’s where the jobs lie. And this is also where the biggest failure to grow exports lies. Exports of manufactured goods have been flat for the past year and have now lagged the president’s goal for 18 consecutive months and by their biggest margin in March – $22.7 billion. Here’s the chart: Manf’d exports vs. goal. And here’s a chart of the balance of trade in manufactured goods: Manf’d Goods Balance of Trade.
So, there’s been no corresponding shift to domestic manufacturing to explain the declining trade deficit, and no pick-up in exports. That leaves only one explanation – the overall economy is slipping into recession. We’ve seen it before – during the Great Depression and the more recent “Great Recession.” Overall trade declines (and with it, the balance of trade) as consumers world-wide stop buying. That’s exactly what’s happening as unemployment around the globe is getting worse. Just this week it was announced that unemployment in the Euro zone hit a record. And, if the federal government were honest about unemployment and stopped claiming that more and more workers are dropping out of the labor force, unemployment in the U.S. would also be near a post-depression record level.
While the headline number for the March trade deficit may hint at an improving economy, the truth is anything but.