Will Strong Trade Data Translate Into GDP Growth?
The advance estimate for fourth-quarter GDP that showed an unexpected 0.1 percent contraction bummed everybody out. Consensus estimates were looking for modest growth around 1.0 percent, but a 22.2 percent year-end decrease in defense spending rained on the entire parade.
But, being based on preliminary and incomplete data, advance estimates are fallible. This is why the Bureau of Labor Statistics releases two more reports (due out at the end of February and the end of March), revising its estimates as it crunches more numbers. These changes can often be substantial. The final estimate for third-quarter GDP growth was 3.1 percent, a full 1.1 points higher than the 2.0 percent estimated in the advance report. But the revisions aren’t always positive. For the second quarter, the advance estimate was for 1.5 percent growth, which was finalized at 1.3 percent growth.
However, following a strong international trade report released on Friday, there’s a good chance that the advanced estimate for the fourth quarter could be revised upwards into positive territory…
The U.S. International Trade in Goods and Services report, released by the Bureau of Economic Analysis toward the middle of each month, showed that the U.S. trade balance in December narrowed sharply. Running a deficit (as usual), the U.S. trade balance shrank to -$38.5 billion, higher than a consensus of -$46.0 billion, and a full $10.1 billion better than the -$48.6 reported in November.
What does this mean?
Led by exports in industrial supplies and civilian aircraft, the narrowing of the deficit suggests several things. First, it means that the prices of U.S. goods and services are relatively low compared to international competitors, which increases demand. U.S. services actually run a surplus, which increased $0.7 billion to $17.7 billion for the month. Meanwhile, the goods deficit — the different between what the U.S. imports and exports — decreased by $9.4 billion to $56.2 billion.
Second, it suggests health in foreign economics. International economic indicators point to tepid health in Europe and increased momentum in large, rapidly-industrializing economies like China and India, which are all good for the U.S. economy.
Total goods exports increased by $3.3 billion to $132.6 billion, and total services exports increased by $0.6 billion to $53.8 billion. With their powers combined, these exports account for nearly 12 percent of real GDP. Since these results were much stronger than expected, and the fourth-quarter advance GDP estimate was based on similar expectations that turned out to be inaccurate, there is high hope that the second estimate will turn around and show growth.
Here’s how the 3 major stock market indices (DOW, NASDAQ AND S&P) finished out the week:
Don’t Miss: How Will the News Media Make Money in 2013?