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Tuesday, January 31, 2017

Imports Normally Would Have Subtracted More From 2016 U.S. Growth

Brad Setser:

Imports Normally Would Have Subtracted More From 2016 U.S. Growth: ...I ... think in some ways the U.S. was lucky not to have slowed more in 2016.
Why? Because import growth stalled, and imports did not subtract as much from U.S. growth as normally would be expected (and yes, that obviously wasn’t the dominant narrative of the 2016 election).
Plus the U.S. essentially got a small GDP boost as a result of a bad harvest in Brazil that raised U.S. soybeans exports in q3 (a rise that was only partially reversed in q4). The U.S. isn’t (yet) a commodity-driven economy, but it also isn’t (yet) a robot-based intellectual property rights (IPR) royalty-driven economy totally divorced from natural sources of economic volatility. ...
Based on normal historical relationships, the expected drag from imports at various points over the last year should have been 35 to 50 basis points of GDP (using the trailing 4q average of contributions as the measure). Even if you believe the elasticity of imports to growth has now fallen and it should track the share of imports in the economy, imports should have increased by about 15 percent of demand growth, so the drag from imports mechanically should have been 20 to 30 basis points of GDP.
And generally speaking, the dollar’s strength over this period should have led imports to over-perform domestic demand in a standard model. That obviously did not happen.
No wonder the Fed’s trade model was puzzled. ...
So the odds are that—absent a big shift in trade policy (and well the odds now favor a big shift in trade policy)—imports will subtract a bit more from growth going forward. And exports—which tend to respond to the exchange rate—are likely to remain weak (and odds are that they will get weaker thanks to the global response to the expected change in U.S. trade policy). ...

    Posted by on Tuesday, January 31, 2017 at 12:42 PM in Economics, International Trade | Permalink  Comments (66)


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