Exports account for about 13% of the U.S. economy these days. That’s a small piece of the GDP pie, but it’s an important piece, thanks to the strong growth in exports.
Exports have been one of the rare consistently bright spots in the U.S. economy. For each and every quarter since Q4 2005, exports have grown at a higher pace–quite often a significantly higher pace than overall GDP, according to the U.S. Bureau of Economic Analysis. In this year’s Q1, for instance, exports jumped by 5.5%–a world above the meager 0.6% rise in overall GDP (both are quoted in seasonally adjusted real annual rates).
In fact, the strong performance in exports in Q1 is typical of the trend for the last several years. Exports, in short, have become a critical factor in keeping the recessionary forces at bay. Exports climbed 5.2% through this year’s Q1 over the year-ago quarter. Overall GDP is up only 2.5% over the same period (seasonally adjusted real annual rates).
The weakening dollar has been a potent source of the bull market in U.S. exports. As the buck has fallen, so too have the prices of U.S. goods and services as denominated in foreign currencies. No wonder, then, that exports have taken flight.
That brings us to the latest trade report for March, released on Friday. Suddenly, the winds have shifted. It’s unclear if it’s a temporary shift or if it portends a new trend. In any case, as our chart below shows, exports in March posted an unusually sharp decline, far out of line with recent history.
Total exports tumbled by nearly $2.6 billion, or 1.7%, in March. What’s more, the decline was sustained in five of the six major export categories. Only exports of foods, feeds and beverages posted a gain, which is probably due to the severe food shortages that now plague some areas of the world. Otherwise, the trend in March exports was down. Autos and consumer goods took the brunt of the fall.
What should we make of the reversal of fortunes in exports? More importantly, what does the March report imply for GDP in the quarters ahead? Clearly, the March trade news reminds us that the exports machine may not shine indefinitely. If the dollar stabilizes or rises, export growth may level out or fall. Meanwhile, if foreigners’ appetite for U.S. goods and services flat lines or falls, either because of slowing economies abroad or other factors, then export growth will moderate.
The problem is that if and when exports stop offering an economic salve to an otherwise weakening U.S. economy, what will take its place? Consumer spending may not be up to the task this year, as we discussed recently. That leaves the corporate sector to pick up the slack. The good news is that corporate America is in remarkably good shape, considering the macroeconomic backdrop. Corporate profits as a percentage of GDP were still running at an exceptionally high 11% at the end of last year, according to the Bureau of Economic Analysis. In normal times, that might lend hope to the idea that corporations will invest capital and hire employees. But these aren’t normal times. Certainly these are different times. Meantime, reading the trade reports is once again a high priority.