ECONOMY & TRADE: Americans bought more imported goods during the first quarter of 2008. Analysts, however, warn this is not a sign of an economic upswing. They project a downturn in imports later in the year, which could impact the global economy.

During an economic slump, people usually spend less money on imported goods. Why? A weak American dollar makes it harder for Americans to afford foreign-made goods. That held true for imported oil, which Americans bought less of during the first quarter of 2008.

Demand for foreign-made cars, however, went up and compensated for the loss in oil imports. This surprised many analysts who had projected a decline in the trade deficit. Instead the trade deficit grew to its highest on record—$62.3 billion in February.

How Healthy is the American Economy?

There are several ways to measure the health of the U.S. economy:

1. Exports—Sales of American-made computers, agricultural products, and heavy machinery rose by 2% to $151.4 billion, setting a record.
2. Imports—Purchases of foreign-made cars and other imported goods and services increased by 3.1% to $213.7 billion, a record high.
3. Unemployment—Number of unemployed filing for benefits fell from 390,000 two weeks ago to 357,000 last week. (Had risen to its highest in more than two years just a week before, but if averaged across four weeks, it totals the highest number of people seeking unemployment benefits since October 2005.)
4. Retail—Although Wal-Mart and Costco performed well, most retailers posted less-than-expected sales in March.
5. Stock Market—Investors believe the drop in unemployment benefit filings, combined with higher-than-expected sales for large retailers, bodes well for the stock market. The Dow Jones industrial average rose 54.72 points yesterday.
6. Other Indicators
   1. Crude Oil—prices reached record highs at $100/barrel, impacting American industry such as airlines. (See sidebar story.)
   2. Value of Dollar—dollar dropped to record lows against the euro, making American-made goods cheaper to foreign buyers.

Is it Recession?

Republicans and Democrats disagree about the state of the American economy:

• Democrats say the Bush administration cost Americans more than 3 million manufacturing jobs since Bush took office, which hurts the economy.
• Republicans say recent free trade improves export opportunities for American companies, which helps the economy.

Meanwhile, economic analysts say the United States is in a recession. They predict Americans will spend less on imported goods as 2008 progresses. “Growth is so weak we are not going to be buying as much,” says Jay Bryson, global economist at Wachovia Corp., in Charlotte, N.C. “We'll see the trade deficit improving.” (Bloomberg, 4/21/08)

In other words, economists expect this surprise bump in foreign purchases to correct itself. Taken with all the indicators above, they do not see it as a sign of an economic upswing.

Sources

"Trade deficit wider; jobless claims drop" (AP)

"U.S. Economy: Trade Gap Unexpectedly Grew on Imports (Update5)" (Bloomberg)

"Surprise widening in US trade gap" (BBC)

"American Air Scrubs 933 More Flights for Wiring Fixes" (Bloomberg)

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