July 13, 2011
The Commerce Department reported that the trade deficit jumped in May to $50.2 billion from $43.6 billion in April. The monthly data are erratic, but this is definitely bad news. This means that growth in the U.S. economy is likely to be very weak in the second quarter. (Measured in constant dollars, the deficit increased by $3.9 billion.) It does not look like trade is about to become a major driver of growth and jobs.
This is also bad news for fans of income accounting. If we have a trade deficit, then national savings must be negative. That means either or both negative private savings or negative public savings (e.g. budget deficits). That’s the rules — there is no way around this one.
But this one didn’t get much attention in the media. I couldn’t find the NYT piece on the deficit. The Post had a piece on the May trade numbers, but it worked hard to get us the good news:
“But rising imports aren’t necessarily bad, because they can indicate the overall direction of demand for goods and services. Some analysts see crude oil, which accounted for more than two-thirds of May’s increase in imports, as a positive read for the economy.
‘It indicates demand is stronger,’ said Linda Duessel, equity market strategist at Federated Investors in Pittsburgh. ‘That’s a good thing here in the U.S.'”
Actually, most of the increase in oil imports came about as the result of higher oil prices, not the need for more oil to fuel the economy. While the volume of oil imports in May was down from its April level, it is more than 9 percent below the average for the first quarter of the year.
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