The encouraging streaks weren’t broken much, but they were broken. That’s the main takeaway from the trade numbers in last week’s official report on US economic growth: the second look at the results for the first quarter of this year.
The first had consisted of three consecutive quarters of growth in inflation-adjusted terms (the most followed figures and the ones that will be used in this article unless otherwise specified) while the price-adjusted trade deficit contracted.
This streak was encouraging because it signaled that the economy was expanding primarily through saving and producing rather than borrowing and spending. In other words, growth was high-quality and sustainable, rather than bubbly and doomed if it lasted too long.
Furthermore, this version of the streak was the longest since the period between the first and fourth quarters of 2007, just before the arrival of the Great Recession caused by the global financial crisis. I know, that moment doesn’t sound very good. But that streak and that crisis were preceded by a long period of rapidly spiraling trade deficits.
The second winning streak consisted of four consecutive quarters of falling trade deficits regardless of economic growth.
Based on the latest reading on the improvement in gross domestic product (or GDP, the standard measure of the size of the economy and how it grows or shrinks) in the first quarter, growth actually picked up somewhat from the first reading results (1.27 percent annualized vs. 1.06 percent). So that was fine. But instead of falling 0.23 percent, from $1.2386 trillion at fourth-quarter annual rates to $1.2358 trillion, the combined goods and services trade gap widened sequentially by 0.40 percent, to $1.2435 trillion.
Optimists may argue that this headline deficit remains the lowest since the $1.2309 trillion recorded in the second quarter of 2021. But pessimists might counter that it didn’t take much additional growth to put the deficit on an upward path once again, and that any acceleration in growth from the sluggish pace of the first quarter could lift US trade accounts as a result. For the record, I lean (but not much) toward that pessimistic view, even though single quarter results are anything but definitive.
Because it was larger than initially reported, the first-quarter deficit now stands at 6.14 percent of real GDP, up from the 6.08 percent calculable as of that initial release (which had been the lowest since 6.06 percent in Q2 2021) and, interestingly, back to its fourth-quarter level. But this number is still much better than the record of 7.47 percent in the first quarter of 2022.
With the first quarter trade gap now getting slightly worse from the first reading of GDP, just as growth has picked up a little faster, its role in driving that first quarter growth was reduced to literally nothing. The initial release for the first quarter reported that the sequential decline in the trade deficit had contributed 0.11 percentage points to annualized growth of 1.06 percent. But now, the modest sequential increase in the trade deficit is reported to have had no effect on the new annualized growth figure of 1.27 percent.
Both results, however, were well below those of the fourth quarter, when a much larger sequential decline in the trade deficit accounted for 0.42 percentage points of its 2.55 percent annualized growth.
The largest first-quarter trade deficit means it is now 49.32 percent higher than it was in the fourth quarter of 2019, the last quarter with complete data before the pandemic hit the United States in force to shake the economy. The initial reading for the first quarter pegged this increase at 48.39 percent, and as of the fourth quarter, it was 48.73 percent.
Total exports increased in the first quarter by 1.18 percent in the first quarter, from $2.5796 billion to a new record of $2.6101 billion. The first-quarter result topped the previous all-time high of $2.6041 trillion in the third quarter of last year by 0.23 percent. These overseas sales are now up 1.49 percent from the fourth quarter of 2019 immediately before the pandemic. As of the fourth quarter of last year, they were just 0.30 percent higher.
At least total exports in the first quarter rose even faster (1.26 percent sequentially) than originally estimated (1.18 percent). The new total of $2.6122 trillion annualized was still a new record, beating the previous first quarter total of $2.6101 trillion by 0.08 percent. And it topped the previous quarterly all-time high of $2.6041 trillion in the third quarter of last year by 0.31 percent.
As a result, combined exports of goods and services are 1.57% above their immediately pre-pandemic level versus 1.49% calculable from the first quarter reading and a paltry 0.30% improvement over the fourth quarter total.
Total imports in the first quarter also increased faster than originally reported. On that first reading, they rose sequentially by 0.73%, from $3.8182 trillion at annual rates to $3.8460 trillion. Last week, this sequential gain was revised up to 0.98 percent for a total of $3.8556 trillion, 0.25 percent higher than last month’s estimate.
As a result, combined imports of goods and services have now grown by 13.24 percent from the last full quarter of pre-pandemic data in the fourth quarter of 2019, higher than the calculable 12.96 percent last month and 12.14 percent from the fourth quarter of last year.
The goods trade deficit continued to narrow for the fourth consecutive quarter from the first-quarter rereading, a span last matched between the second quarter of 2019 and pandemic-plagued 2020. It also remained the lowest number since $1.3965 trillion at Q2 2021 annual rates. 28 trillion. And now it’s up 0.57 percent from the fourth quarter instead of the previously calculable 1.09 percent.
In addition, these results fueled the increase in the goods deficit since the pandemic began to shake the US economy from 32.21 percent against a calculable 31.52 percent last month. In the fourth quarter, this increase was 32.96 percent.
Exports of goods were even better than previously reported. At the first release of the first quarter, they rose sequentially by 3.41 percent, from an annualized $1.8468 trillion in the fourth quarter to a new record of $1.9098 trillion. That total topped the old record of $1.901 trillion in the third quarter of 2022 by 0.47 percent.
But the second release boosted that quarterly increase by 0.08 percent. Thus, the record total rose to $1.9113 trillion and improved from the fourth quarter to 3.49 percent. Furthermore, exports of goods are now up 6.99 percent from the fourth quarter of 2019 immediately before the pandemic, up from a calculable 6.90 percent last month.
Merchandise imports expanded more in the second quarter GDP reading than in the first quarter, but the rate was much lower than that of merchandise exports. Unlike last month’s 0.90% sequential increase (from $3.2830 trillion annualized in Q4 to $3.3126 trillion), the new mark is now seen at $3.3214 trillion, up 0.27% from the initial reading and 1.17% over the fourth quarter total.
These results still represent the first increase in imports of goods in three quarters and have brought the gain since the fourth quarter of 2019 to 16.41 percent from a calculable 16.11 percent last month.
At the same time, the long-standing surplus in services trade contracted more sequentially in the first quarter than initially reported. As of last month’s release, it had declined 5.63 percent from the fourth quarter, from $177.7 billion to $167.7 billion. And this drop was the largest since 20.94 percent in the second quarter of 2021.
But in the new version, the sequential decline was 5.91 percent (still the biggest pullback since Q2 2021), and the new total was $167.2 billion annualized, a 0.30 percent drop from the previously reported first-quarter total. So instead of shrinking by 28.08 percent from just before the pandemic took effect in the fourth quarter of 2019, the surplus in this sector, which has been hit hard by the CCP virus and its aftermath, is now down 29.09 percent.
The sequential decline in services exports is now considered not to have been as pronounced as reported in the previous Q1 GDP release. Then, at $721.1 billion at annual rates, it was 1.41 percent below the fourth-quarter total of $731.4 billion. Now, the first-quarter total is estimated at $721.6 billion, 0.07 percent better than the initial first-quarter figure and 1.36 percent below the fourth-quarter level.
As a result, service exports have approached 8.29 percent of their immediate pre-pandemic total, up from a calculable 8.35 percent deficit last month.
But instead of falling a bit sequentially in the first quarter, as reported in last month’s release, imports of services are now seen to have increased slightly. Last month, these purchases were reported to be $553.4 billion at annual rates, down 0.05 percent from $553.7 billion in the fourth quarter. They are now pegged at $554.4 billion, 0.18 percent above the prior first-quarter reading and 0.13 percent above the fourth-quarter total.
According to reports, imports of services have now grown 0.62 percent since the last quarter of 2019 pre-pandemic in full data, up from a 0.44 percent increase recorded last month. In the fourth quarter of last year, this increase was 0.49 percent.
As mentioned at the outset, these new trade and GDP results could mean that any acceleration in US economic growth could lead to renewed growth in the trade deficit, confirming the end of a streak of continued growth and falling deficits. But with experts apparently divided on their second-quarter growth forecasts (see, for example, here), the safest observation for now seems to be that the course of the deficit remains at the same crossroads as outlined in my previous post on trade and GDP.