Regular contributor Michael Pollaro offers three more charts which tell a
story that's both disturbing and apparently misunderstood by a lot of mainstream
analysts.
The US trade deficit (exports minus imports) has been getting smaller. Since
a trade deficit subtracts from GDP growth, a shrinking deficit will, other
things being equal, produce a bigger, faster-growing economy (that's the mainstream
take).
But other things aren't equal. It turns out that the components of that trade
balance figure are both shrinking. Exports -- the stuff we sell to foreigners
-- have been declining since the dollar spiked in 2014. That's not a surprise,
since a strengthening currency makes exports more expensive and thus harder
to sell. So other countries are buying less of our stuff, which though not
surprising is a bad sign.
Meanwhile, imports -- stuff we buy from abroad -- have also plunged in the
past year, which is partly due to cheaper oil lowering the dollar value of
energy and other commodity imports. But it also means that even though French
wine and German cars have become less expensive as the dollar has soared against
the euro, we're not buying more of them. So US consumers, even with all the
money they're saving at the gas pump, still can't (or won't) take advantage
of a sale on imported goods.
If imports and exports are both falling, that means consumption is weak pretty
much everywhere. And weak consumption means slow or negative growth, which
contradicts the recovery thesis that now dominates policy making and the financial
media.
It also makes last week's market turmoil easier to understand. Falling trade
means lower corporate profits, which, if history is still a valid guide, means
less valuable equities. So it could be that the markets are simply figuring
this out and revaluing assets accordingly.
