I was at the gym yesterday and like most slightly upscale gyms (not very upscale since I never understood the need to pay upwards of 100 euros to lift weights) it shows news channels on several TV screens.
One of them is BBC World and the little ticker at the bottom of the screen at some point showed: “Narrowing US trade deficit in December raises hopes that economy was stronger in last quarter than previously estimated.” I waited until it came by again to be sure that I hadn’t misread because this statement is simply nonsensical.
“Narrowing trade deficit” can mean one of several things:
- Imports fell while exports stayed unchanged – in this case US consumers spent less money during December, the month that I usually read is the one during which consumers in European and European-descended industrialized countries spend the most. That’s a bad sign since it probably means that compared to debt service and saving desires they have less money available, e.g. because the economy weakened and people got laid off.
- Imports stayed unchanged while exports grew – in this case US consumers still spent not more money during December. At the same time exports grew, which could mean that US products got cheaper compared to the competition. This could be the case if the US dollar devalued during the last quarter but it didn’t against the Euro, nor against the YEN, nor the Brazilian Real, although it did a little bit against the Renminbi. Alternatively, exports become cheaper because costs, in many cases wages, fall – which would explain the stagnant imports and wouldn’t really point to economic recovery.
- Imports grew slower than exports – this is a the only case that could support BBC’s claim but even then, the question remains what drove the exports. Since exchange rates didn’t change, I still don’t see that this is a good harbinger for US wages, domestic demand, and an economic recovery.