May 05, 2015
The sharp jump in the March trade deficit reported this morning means that GDP in the first quarter will be revised into negative territory. The $51.4 billion trade deficit reported for March, was $15.5 billion increase from the $35.9 billion deficit reported in February. Some of this is undoubtedly noise in the data (the February number was surprisingly low), but some of the rise is likely due to the impact of the higher dollar which is making U.S. goods and services less competitive internationally.
This is a really big deal, much bigger than the news about greater or smaller than expected budget deficits that can often be found on the front page. There is no easy mechanism to offset the demand lost as a result of a trade deficit that was running at more than a $600 billion annual rate in March. It is difficult to see how the economy can get to full employment with a trade deficit of this size, without the government running large budget deficits or an asset bubble spurring demand.
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