Net export number improves, but…

In case you are new to the blog, let me repeat a formula that I use frequently.  Gross Domestic Product, alias the economy, is measured as: Consumer spending + Investments by businesses + Government spending + eXports, net.  In other words, GDP = C + I + G + X.

Today the January net exports number was reported by the U.S. Commerce Department.  Specifically, the trade deficit declined $2.61 billion, or 6.6%, to $37.29 billion.

Analysis: Frankly, major business publications don’t often feature the X portion of GDP.  So what gives today?  Well, in part, the major business publications seem to be trying to “talk up” the economy, in my opinion.  While the reduction in the pain that is “net exports” is encouraging, the trade deficit remains a source of economic loss for the United States.  In other words, a trade deficit literally means that the total subtracts from the U.S. economy.  Unfortunately, the U.S. has been a net debtor nation in trade for decades.  This is not news.

Additionally, 56.7%, or $1.48 billion of the trade deficit improvement came from a reduction in the purchase of foreign cars by our fellow U.S. citizens.  Quick, think of a foreign car manufacturer that might be suffering from a decline in sales?  Hmmm, Toyota comes to mind.  The question is: have U.S. consumers permanently reduced their purchase of Toyotas?  If not, then the improvement in the trade deficit is merely a short-term fluke.  My own opinion is that Toyota will see reduced demand for its cars for several years, but that there will be a gradual improvement.  That translates into a short-term effect on GDP, not a permanent one.  Consequently, the lessening of the economic drag that is net exports is not likely to repeat itself.

Importance grade: 3; despite the fact that the improvement in the trade deficit is getting a lot of press today, this data really is not that important.

Jason