Foreign trade, both imports and exports, fell sharply in the second half of last year, but the numbers are starting to level out. We see this pattern in many, many indicators: retail sales, car sales, consumer confidence, existing home sales, capital goods orders, non-residential construction, oil prices, and the stock market.
The drop in both exports and imports has been far steeper than the decline in overall economic activity. Since the peak last July, exports have fallen 26 percent, imports by 34 percent. Some of the import decline came from lower oil prices, but the non-petroleum data show both imports and exports down 30 and 28 percent respectively.
The dollar does not explain the steep decline in both exports and imports. This greater volatility is explained in my favorite economics book. Foreign trade is concentrated in more discretionary goods and services, items for which demand fluctuates a lot. As a result, exports and imports have always displayed more volatility than the underlying economy. If you are too cheap to buy the book, you can read the relevant sections via Amazon's "Search Inside This Book" feature. Simply mouse over the book image on this page and search for Exports (go to the page 34 entry) or Imports (page 37).
The outlook for foreign trade is positive. When the world economy begins to recover, which I think is in the second half of this year, both exports and imports will rise. I think that protectionism in many countries (including here in the U.S.) will dampen trade growth somewhat, but not prevent an increase. The dollar is likely to decline by 15 percent or so once this crisis is over, which will boost our exports and slow the growth of our imports.
updated May 12, 2009
Sign up to get our newsletter with money saving tips, travel hacks and more - no spam.
discounts & deals from all banks in one app?
At GET.com we compare credit cards and rate them objectively based on the credit card's features, interest rates and fees.
Cards are rated by our team based primarily on the basis of value for money to the cardholder. The GET.com team rates each card based on its annual fee, rewards, benefits, bonus, introductory APR, ongoing APR, flexibility (in how its benefits can be used and how rewards are earned and redeemed), and other card features.