According to the Commerce Department’s revised estimate released today, the economy grew at a solid 3.3 percent pace in the second quarter. This is 74 percent faster than the advanced estimate of 1.9 percent growth released last month. While consumer spending edged up a little faster, rising at a 1.7 percent annual rate, than initially reported, the bulk of the improvement in the health of the economy came from trade. Export growth was revised up to 13 percent (compared to 9 percent growth in the advanced report) while imports fell by 7.6 percent (compared to -6.6 percent in the advanced report).
As a result, net exports (exports-imports) contributed 3.1 percentage points (or 94%) of the total 3.3 percent growth in the second quarter. This is the single largest quarterly contribution to growth from trade in 28 years (2nd quarter 1980). Exports alone were responsible for half of GDP growth last quarter.
Thanks to a more-competitive value of the dollar and solid growth overseas, trade winds are propelling the economy forward just at the right time. Since the housing recession started in the first quarter of 2006, trade has added more to GDP growth than housing (residential investment) has taken away.
Today’s news should be a wake up call to members of Congress, especially those who are dubious about the benefits of trade and claim that Free Trade Agreements, which work to level the playing field and make U.S. manufacturers more competitive, hurt American workers.
The trade deficit, which was 5 percent of GDP in the second quarter, is mainly a reflection of our country’s reliance on foreign sources of energy. By themselves, imports of petroleum made up 69 percent of the entire trade deficit in goods and services last quarter. A comprehensive national energy strategy focused both on increasing efficiency as well as increasing domestic production will help reduce our reliance on energy imported from abroad.
The trade deficit in manufactured goods with our FTA partners, however, has narrowed over the past few years and through the first six months of this year, has turned into a suplus! Congress can help manufacturers further by passing the three FTAs (with Colombia, Panama, and South Korea) that are awaiting congressional approval. Economically, its a no-brainer. Lets hope that the politicians on Capital Hill can show the political courage, ignore the foes of free trade, support U.S. manufacturers, and pass these agreements.
These issues are discussed more fully in this year’s, NAM Labor Day Report, which was just released. I’ll write more about this tomorrow.