Trade Deficit Decrease Means Less Than It Seems

By John S. McClenahen U.S. imports of goods and services in July, the most recent month for which Commerce Dept. data are available, dropped more than did U.S. exports. And ordinarily a shrinking trade deficit -- $28.8 billion in July, down from $29.1 billion in June -- would be encouraging news for a U.S. economy that continues to flirt with recession. However, "the improvement in the gap [between U.S. exports and imports] is remarkably modest from an historic perspective," notes Maury Harris, chief U.S. economist at UBS Warburg, New York. "Typically, a slowdown of the current magnitude would quickly slash the trade gap." Harris figures the U.S. July trade deficit with the rest of the world was nominally about $1 billion below the second quarter's average. But when adjusted for inflation, he says, July's figure basically shows no change. "Thus, the [trade] report offers little hope of improvement in third-quarter GDP. The Fed must look elsewhere for help."

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