FACT OF THE WEEK: Troubles Persists in Latest Trade Data

By at 11 December, 2016, 9:34 am

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The U.S. Bureau of Economic Analysis on December 6 gave us the first look at exports and imports in the fourth quarter, with its release of October trade numbers.

In SBE Council’s recent Gap Analysis #7: Lost Exports, Lost Small Businesses, it was noted that export growth, for example, has been woeful over the past near-decade: “Unfortunately, consider that the growth in real U.S. exports has been underwhelming, to say the least, in recent years. Looking at quarterly GDP data from 1956 to mid-2016, the real annualized growth rate in exports averaged 6.8 percent. Since the start the last recession in the fourth quarter of 2007, real export growth has averaged a mere 3.2 percent. And looking at the current expansion/recovery period, real exports have grown at an average rate of 4.8 percent.”

Troubling Trade Data

Unfortunately, the latest trade numbers point to continuing troubles. After some growth during the first nine months of the year, exports declined in October – from $189.8 billion in September to $186.4 billion. It also must be noted that monthly exports are still down markedly from the $200.2 billion level registered in October 2014. In fact, exports for all of 2015 were down versus 2014, and through the first ten months of 2016, they are down versus the first ten months of 2014 and 2015.

On the import side, which offers at least a partial reflection of the state of the domestic economy, imports were up in October, after a decline in September. October imports of $228.96 billion was up from $215.7 billion in March of this year, but down from the $241.5 billion registered in 2014. Similar to the export story, annual imports declined in 2015, and through the first ten months of 2016, imports are down versus the first ten months in both 2015 and 2014.

This recent decline in trade adds to the negative fallout on the trade front in recent years, including in terms of lost small business exporters. Again, as noted in SBE Council’s Gap Analysis #7: Lost Exports, Lost Small Businesses:

These lost export opportunities have meant a decline in the number of U.S. exporters, and since most exporters are small and medium-size enterprises, we are suffering a noteworthy shortfall or gap in the number of small business exporters. Among total U.S. exporting firms, exporting firms with less than 500 workers, and exporting firms with less than 100 employees, the average annual growth rates were markedly slower during the periods of 2008 to 2014, and 2010 to 2014, compared to 1997 to 2014, and 1997 to 2007.

Indeed, if the average growth rate for 1997 to 2007 had prevailed over the period of 2008 to 2014, there would have been approximately 51,660 more U.S. exporting firms in 2014 than there were.

The same dire trend is found among smaller exporting firms. If the average growth rates for 1997 to 2007 had prevailed over the period of 2008 to 2014, there would have been approximately 48,870 more U.S. exporting firms with fewer than 500 workers in 2014 than there were, and approximately 49,800 more U.S. exporting firms with fewer than 100 workers.

Since these numbers only are updated through 2014, one has to wonder what’s occurred since, given the decline in trade experienced during 2015 and 2016 so far.

Make no mistake, trade matters. As noted in the SBE Council Gap report: “From 2000 to 2015, the growth in real U.S. exports equaled 22.5 percent of the growth in real GDP, and the expansion in real total trade (i.e., exports plus imports) came in at 41.6 percent of real GDP growth.”

While multiple factors are in play here, it’s clear that the U.S. has suffered due to abandoning over the past eight years its traditional role as a global leader advancing free trade. Anti-trade sentiments served up by President-elect Trump on the campaign trail are of concern to businesses of all sizes that compete in global markets. We still don’t know specifically what his actions will be in regard to existing agreements and trade accords under negotiation, and he has recently stated he prefers bilateral trade accords. We do know one thing, however, the U.S. needs to reclaim the leadership mantle on freer trade, and push ahead with efforts to reduce governmental barriers for individuals, entrepreneurs and businesses to trade across borders.

Raymond J. Keating, Chief Economist


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