Weekly Economic Trends and Indicators
The Headline:
According to the Census Bureau and the Bureau of Economic Analysis, the U.S. trade deficit increased from $63.7 billion in June (revised) to $65.0 billion in July. This represents an increase of about 2.0%. Exports were up 1.6% in July while imports were up 1.7%.
Over the last 12 months, the trade deficit has fluctuated in a narrow range between $60 billion and $80 billion.
The Local Impact:
Nationally, export growth has slowed over the last year after a healthy rebound following the COVID-19 recession. Monthly export totals peaked in July 2022 and have fallen by about 4% since then. This has taken place even as GDP continues to grow, albeit at a slower rate. Unlike most other components of GDP, exports are less tied to domestic conditions and more responsive to conditions overseas and the value of the dollar on currency markets.
The value of the dollar (measured by the Federal Reserve’s Nominal Broad Dollar Index) has increased by more than 10% since mid-2021, peaking almost exactly a year ago in late September 2022. For the first part of 2023, it appeared that our export manufacturers would get some relief as the dollar lost about half of its recent rise, but the relief was short-lived. Since this July, the dollar is up 3% and shows signs of going higher—especially after recent news from the Federal Reserve that interest rates are likely to stay higher for longer.
Exports account for about 14% of GDP on average across the U.S. However, the Quad Cities area is much more reliant on export activity than the U.S. average. While we rank 147th among metropolitan statistical areas in population, we rank 52nd in the country in exports (2021 data). As a result, the share of total economic activity accounted for by exports is considerably higher in the Quad Cities. In 2019, exports were responsible for a whopping 26% of regional GDP. Even during the COVID-19 recession in 2020, the share only fell to 23%.
Consequently, the Quad Cities region is more sensitive to factors that cause exports to fluctuate, such as the value of the dollar and foreign economic strength, than many other metro areas. Anyone who has been in the manufacturing business since the last peak of the dollar in 2002 can attest to this. The early 2000s were difficult for export manufacturers locally and throughout the country. In contrast, when the dollar hit a post-2000 low in 2011 it signaled the largest increase in local Quad Cities GDP in recent years. At that time the value of the dollar was about 29% lower than it is today. From 2010 to 2012, regional exports jumped by 65%, and regional GDP increased by 9.4%.
Is relief on the way? Probably not in the immediate future. Even so, what goes around comes around. The peak dollar in 2002 did not last forever, and this peak will not last forever either. It will, however, require normalization of interest rates and stronger economic growth abroad.
Next week: National labor market update
