Fewer imports, better growth – WSJ

With Americans shifting their spending away from goods, fewer imports will arrive at American docks. The US economy could thus grow more rapidly.

The pandemic has sparked strong demand for all kinds of consumer goods, as people cut spending on things like travel and restaurants, tried to make the homes they were squatting in more livable and received relief payments government that made it easier. spend. Many of these products were made overseas.

The result was a massive widening of the U.S. trade deficit, which rose from 2.5% of gross domestic product in the first quarter of 2020 to 4.9% in the first quarter of 2022, according to the Commerce Department. Adjusting for inflation, this has reduced GDP by about 2.5% over the past two years. The only time trade weighed more heavily on GDP growth was in the very different circumstances of the early 1980s, when the US trade deficit with Japan soared.

But the tide is turning. On Tuesday, the Commerce Department announced that the US trade deficit in April was $87.1 billion, seasonally adjusted. That’s a big gap, but not as wide as March’s $107.7 billion. Given the excess inventory issues that many department stores such as Target are currently facing, it seems likely that the trade deficit will narrow further in the coming months as they import less merchandise.

If spending on things like furniture and kitchen appliances starts shifting to services, that will benefit American growth, because most of the services we buy are local – you can’t buy a haircut made in Hanoi.

The shift towards services could hurt US-based producers of goods, but in many cases they could be better insulated than many of their foreign counterparts. Bank of America economists point out that the job recovery in goods-producing industries has been muted – manufacturing employment is still slightly below pre-pandemic levels – while industries working to meet consumer demand , such as warehouses and stores, experienced the strongest acceleration in employment.

Factory employment is likely being held back by semiconductor supply issues that continue to plague the auto industry, which is a driver of all manufacturing in the United States. As tokens become more available, car sales may be the most resilient part of spending on goods.

For some countries that export heavily to the United States, the reduction in the trade deficit could weigh on growth. China in particular stands out because it is a major source of consumer products sold in the United States and, unlike Canada and Mexico, is not a major manufacturer of cars and auto parts that travel to the United States. United.

For the United States, a reduction in the trade deficit could prevent the economy from slowing nearly as much as investors fear.

Write to Justin Lahart at justin.lahart@wsj.com

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