So the trade deficit decreased. Is that good?

Tracey Samuelson Nov 4, 2015
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So the trade deficit decreased. Is that good?

Tracey Samuelson Nov 4, 2015
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Add up the value of the goods and services exported by the United States, subtract the value of imports, and you wind up with a figure known as the trade deficit

The Commerce Department said Wednesday the trade deficit narrowed to $40.8 billion in September, which is its lowest level in seven months. 

In other words, people spending more on our stuff, we’re spending less on theirs. That’s good news, right?

I would caution that it might not be a permanent improvement,” said Robert Lawrence, professor of international trade and investment at the Harvard Kennedy School. “What we have is weak growth in our trading partners and our goods becoming relatively more expensive because our currency has been rising. On the other side of the coin, we have relatively stronger growth in the U.S. economy and imports becoming relatively cheaper.”

A big cause of the shrinking trade deficit is a lower foreign fuel bill, largely thanks to the falling price of oil.

Meanwhile, the trade deficit in manufacturing actually rose.

The reality is that manufacturing trade deficit is what affects jobs in the U.S., especially in the manufacturing sector,” said Cornell University’s Eswar Prasad. 

In general, strong imports can be a good economic indicator, though that may seem counter intuitive, said Dan Ikenson director of the Cato Institute’s Center for Trade Policy Studies. 

“Both consumers and businesses tend to import more when the economy’s growing,” he said. “And they tend to forgo purchases, which tend to shrink imports when they’re more concerned.”

The bottom line: we shouldn’t lean too heavily on one month’s data.

“It’s hard to read these tea leaves, quite honestly,” Ikenson said.

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