BIG PICTURE: US Is Engine Of Growth But Also Of Slowdown
By John McAuley
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The first law of economics is: "Life is not fair."
When the U.S. economy was growing flat out it acted as an engine of growth,
pulling along weaker foreign economies in its wake.
Now, that the U.S. economy is in a slump, foreign economies have not only
failed to take up the lead role, but those economies have slowed along with
the U.S. And, if anything, they have exacerbated our homegrown weakness.
That may well be the main message buried in the Commerce Department's
reports Thursday on the April foreign trade balance and the first quarter
current account.
The current account - the broadest measure of U.S. flows of exports,
imports, net overseas incomes, and transfers - recorded a narrower deficit
in the first quarter, mainly because of a smaller deficit on goods and
services trade. The total current account deficit narrowed from $116.3
billion in the fourth quarter to $109.5 billion in the first quarter, while
the shortfall on goods and services shrunk from $100.3 billion to $95.0
billion.
But it looks like the good news didn't continue into the current quarter.
The monthly goods and services deficit widened from an average $31.7 billion
in the first quarter to $32.2 billion in April.
As a consequence, "there is no good news about U.S. economic conditions in
the latest international trade statistics," wrote John Youngdahl, economist
at Goldman Sachs in a market comment. "It is surprising and noteworthy that
the foreign sector thus far is not providing much, if any, buffer against
the steep deterioration in domestic spending."
In fact, the most unsettling aspect of the trade deficit in April is that
even though imports declined as expected, it had little effect on the
deficit, which ended up only slightly narrower than March's $33.1 billion
shortfall.
That's because the 2.2% decline in imports, in tandem with a weakening in
U.S. household and business demand, was nearly almost matched by a 2.0%
decline in exports as foreign demand fell off.
Youngdahl noted that "exports have declined sharply in recent months," and,
on an inflation-adjusted basis, "they are declining at more than a 18.5%
annual rate in April from the first quarter average."
Indeed, "excluding the volatile aircraft and gold components, nominal
merchandise exports are now at their lowest level since February 2000,"
Youngdahl said.
No Help From The Foreign Trade Sector
What's discouraging is that the U.S. is not deriving any competitive
advantage from the slowdown in its foreign trade position.
Constant dollar merchandise imports in April were down at a 9.5% annual rate
from the first quarter average, reflecting weakened demand.
But, the retrenchment provides no benefit to U.S. economic growth because of
the greater decline in exports that Youngdahl noted.
It appears that foreign economies in Europe, Japan, and non-Japan Asia have
failed to ignite self-sustaining growth that might have helped the U.S.
economy out of its current slump.
And then there is the faltering in the Mexican and Canadian economic growth
rates, which are most directly impacted by the U.S. economic slump. Because
of the importance of cross-border trade, the entire North American Free
Trade Area is slumping together.
Indeed, the Economic Cycle Research Institute maintains that the U.S. and
Mexican economies are already in recession along with Japan and Taiwan.
"Korea and Australia are showing signs that a recession is likely," said
Anirvan Banerji, ECRI's research director.
More important, "while up to now there were recessionary signs in the
Americas and the Pacific-rim Asia, Europe had seemed safe. But now recession
can no longer be ruled out in Germany and, so, Europe too is vulnerable,"
Banerji said.
That prospect calls to mind a much worse prospect: the 16-month recessions
of 1973-75 and 1981-82. "The first was a worldwide recession, (and) in the
second only Japan avoided a downturn and it was prolonged because there was
no engine of growth," Banerji said.
There's a regrettable tendency for Americans to shrug and say "so what?"
about the trade deficit. But, "declining exports will only make matters
worse for the already troubled state of corporate earnings," observed John
Lonski, chief economist at Moody's Investors Services.
That suggests a more complex set of problems: problems that could compound
the problems that ECRI's Banerji highlights and problems that could prolong
a U.S. slump and remove doubts about Banerji's conclusion that the U.S. is
already in recession.
-By John McAuley, Dow Jones Newswires, 201-938-4425;
john.mcauley@dowjones.com
(END) DOW JONES NEWS 06-22-01
04:02 PM
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