The trade data get less market attention than they deserve. Exports are booming, and the monthly data are an important part of overall GDP. In fact, exports are now over three times as large as the housing component in GDP. The improvement in the trade balance, particularly in the real (price adjusted) trade balance, has provided a significant boost to real GDP growth the past year. Further improvement in the trade balance over the year ahead will provide important support to the economy. Note: higher oil prices worsen the trade balance and GDP deflator, but do not directly impact the real trade balance or real GDP.
The trade report is most widely watched for trends in the overall trade
balance. But trends in both exports and imports of goods and services bear
watching as well. The export data in particular are important to watch for
indications that a strengthening competitive position at home and/or
strengthening economies overseas are boosting U.S. growth. Imports provide an
indication of domestic demand, but given the severe lag of this report relative
to other consumption indicators, it is not particularly valuable for this
purpose.
The volatility in the monthly trade balance can play an important role in
GDP forecasts. Net exports are a relatively volatile component of GDP, and the
trade report provides the only early clues to the net export performance each
quarter.
