Economists are beginning to predict third quarter grow domestic product (GDP) growth will turn positive after two quarters of negative growth, maybe ending thoughts of a recession occurring next year.
The U.S. trade deficit fell in August to a 15-month low of $67.4 billion, mainly because exports were the second highest on record, which adds to gross domestic product income, while imports dropped 1.1 percent to $326.3 billion, which subtracts from national income, marking the lowest level since early 2021.
The difference between imports and exports is part of the gross domestic product calculation, and the actual deficit between imports and exports narrowed 4.3 percent from $70.5 billion in July, the government said Wednesday. It was the fifth decline in a row.
Why? The U.S. economy has recovered from the COVID pandemic much more quickly than other countries. It should mean solid economic growth will continue, especially since inflation is beginning to decline.
Keep in mind the naysayers believe the Fed will boost interest rates too high, as has happened in the past; such as when former Fed Chair Volcker boosted interest rates so much it caused two back-to-back recessions in 1981-82.
The Atlanta Federal Reserve, noted for its Gross Domestic Product predictions, has also come out with a very optimistic third quarter prediction of economic growth, after the first two quarters of negative growth in 2022.
“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 2.7 percent on October 5, up from 2.3 percent on October 3,” said the Atlanta Fed in its press release. It’s a technical analysis mainly intelligible to economists, and highlights the difference from the negative first and second quarter GDP growth.
The Atlanta Fed calls it a GDPNow estimate, so it won’t be confused with official U.S. Federal Reserve prediction of Q3 GDP growth, which will come out a month later and is lower at the moment.
Their GDPNow estimate was adjusted upward very abruptly, apparently not anticipating the fast U.S. recovery, especially in exports that add the most to economic growth, as I said, along with inventory buildup (i.e., higher investment). The GDPNow estimate flagged the pickup in exports announced in the final Q2 GDP estimate as well as strong consumer spending.
There are strong indications that inflation is subsiding everywhere, as I’ve been saying, mainly because so much of it was caused by supply-side shocks due to the pandemic and the Ukraine war.
Nobel Laureate Paul Krugman wrote in a recent NYTimes Op-ed that he believes long term there will be a return to lower interest rates and inflation once things calm down.
“Many commentators have asserted that the era of low interest rates is over. They insist that we’re never going back to the historically low rates that prevailed in late 2019 and early 2020, just before the pandemic — rates that were actually negative in many countries.
“But I don’t see that happening. There were fundamental reasons interest rates were so low three years ago. Those fundamentals haven’t changed; if anything, they’ve gotten stronger. So it’s hard to understand why, once the dust from the fight against inflation has settled, we won’t go back to a very-low-rate world.”
Let us see if those “fundamental reasons” haven’t changed, and we can return to a more peaceful world.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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