The economy grew at a 2.8 percent annualized rate in the third quarter, reports the Bureau of Economic Analysis, up from 2.5 percent in the second quarter and 1.1 percent in first quarter.
Meanwhile, personal consumption has steadily slowed down the past three quarters from 2.8 percent, to 1.8 percent, to 1.5 percent in the third quarter.
Why the contradiction? Consumer spending is usually thought to drive economic growth, not run contrary to it. So what gives?
“The acceleration in real Gross Domestic Product (GDP) growth in the third quarter primarily reflected a deceleration in imports,” among other items, the Bureau reports.
Which tells you much of what you need to know, since the trade deficit counts against the GDP. When the trade deficit narrows, economic growth is seemingly boosted, and when it increases, it detracts from reported growth. Sure enough, this year the trade deficit has dropped from $523 billion in the first quarter, to $509 billion in the second, and to $493 billion today.
Yet the slowdown of imports corresponds directly to the slowdown of consumer spending — Americans were buying less of everything. That is actually not a good sign going forward.
Shrinking trade deficits are often associated with recessions, as was the case both in 2001 and 2009, according to data compiled by the Federal Reserve. In fact prior to the last two recessions, the trade deficit was narrowing. It is predictive.
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Robert Romano is the Senior Editor of Americans for Limited Government.