Tea Leaves on the Economy: The Latest Trade Data

By SBE Council at 7 September, 2022, 1:11 pm

by Raymond J. Keating

What do the latest trade numbers released by the U.S. Bureau of Economic Analysis tell us? This is important as we seek clues as to where the economy is headed in the third quarter and beyond. Unfortunately, the July trade data raise more questions about the health of the U.S. economy.

First, exports of goods and services (seasonally adjusted) were up ever-so-slightly in July versus June – growing by 0.2 percent. Fortunately, since inflation took a breather in July, the small gain in exports wasn’t wiped out by inflation (exports and imports of goods and services in this monthly report are in nominal dollars, not adjusted for inflation).

Second, and most troubling, is the fact that imports of goods and services (again, in nominal terms) declined in July by 2.3 percent versus June. Over the last four months, nominal imports were on a general decline. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

As we work through the trade tea leaves to see what matters most, it’s crucial to keep in mind that imports are inputs to U.S. businesses, whether they be capital goods for manufacturers, for example, or consumer goods for U.S. retailers. And considering that most sectors of our economy are overwhelmingly populated by smaller firms – including manufacturing (74.3 percent of employer firms have fewer than 20 employees, according to the latest Census Bureau data) and retail (90.9 percent of employer firms have fewer than 20 employees) – imports are critical to American small businesses.

So, the decline in imports are in no way a reason for celebration, but instead, another measure placed in the “worry” column about the state of the U.S. economy. After all, an economy that is growing strongly is one that will attract imports.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.