U.S. Could Have Annual Trade Surplus with the United Kingdom

In yesterday’s blog entry, I noted that the median 4-quarter rebound in real GDP following the trough of a recession in the U.S. came to 5.4% during the post-World War II era. In the United Kingdom, the initial growth was typically far more modest. Since 1955, the median rebound in real GDP in the United Kingdom came to 1.4%.



During the three most recent recessions, the initial U.S. rebound has been notably smaller. Given household deleveraging in the U.S., among other factors, real personal consumption expenditures will likely grow more slowly than usual. With real personal consumption expenditures having accounted for 69.9% of real GDP at the start of the current recession, the slow growth in real personal consumption expenditures will likely limit the magnitude of initial U.S. economic growth.

In the United Kingdom, household consumption accounted for a smaller share of GDP. At the onset of the current recession, British consumption accounted for 62.7% of real GDP. Hence, any slowdown in the growth rate of British consumption will likely have a lesser impact on the strength of the initial recovery in the United Kingdom. As a result, the initial recovery may well be pretty close to the median experience since 1955 +/- 1.0%.

Such an outcome could favor a strengthening of the British Pound vis-à-vis the U.S. dollar. As a result, the United States could enjoy an annual trade surplus with the United Kingdom for the first time since 1998.

&&

U.S. Trade Deficit Decline Mainly Due to Improved Balance of Trade with 10 Largest Partners

Since U.S. exports and imports both peaked in July 2008, the monthly trade deficit has fallen from $64.891 billion to $25.962 billion (May 2009). That was the lowest monthly trade deficit since November 1999 when the monthly trade deficit stood at $25.745 billion. A further unwinding of the U.S. trade imbalance is likely in the months ahead.

A closer examination of the data reveals that the U.S. trade deficit was not driven sharply lower due to a pickup in U.S. exports. Instead, the data revealed:

• The trade deficit fell sharply because U.S. imports plunged much more rapidly than U.S. exports. Since July 2008, U.S. exports are down 25.0%. Meanwhile, U.S. imports had declined 34.9%.

• Improvement in the trade balance with the nation’s 10 largest trading partners (the ten largest partners in July 2008) accounted for 94% of the decline in the monthly U.S. trade deficit.



• With the 10 largest trading partners, U.S. exports fell 26.3%, while imports declined by 41.1%. Excluding China, with which exports and imports both fell more modestly, exports fell 27.2% and imports plunged 45.4%

• U.S. imports from Venezuela and Saudi Arabia—mainly crude oil—contracted more than 65% on account of reduced U.S. oil consumption and a decline in the price of crude oil. Overall, imports contracted by 40% or more with 5 of the nation’s 10 largest trading partners.



&&