Don't Be Happy About That Shrinking Trade Deficit

Earlier today we got the latest trade deficit number for the US in June.

The trade deficit came in at $42.9 billion vs. expectations of $47.5 billion. It’s also below the previous month’s $48 billion.

Theoretically that’s “good” because the trade deficit gets subtracted from GDP.

But as we’ve pointed out before, it’s not good because historically big trade deficits are associated with periods of more growth (It makes sense. More trade = more economic activity).

This chart shows year-over-year GDP change (blue line) vs.  the trade deficit (red line). When the trade deficit is going down, GDP does too.

So you shouldn’t like that decline in the red line representing the last month.

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