- The Washington Times - Friday, January 28, 2005

An eight-month recession that began in March 2001 generated an anemic economic growth rate of 0.8 percent in 2001. Since the recovery began in late 2001, however, the expansion rate of the U.S. economy accelerated in each of the next three years; total U.S. economic output grew by 1.9 percent in 2002, 3 percent in 2003 and 4.4 percent in 2004, according to yesterday’s report by the Commerce Department. While the economy grew by 4.4 percent in 2004, a soaring trade deficit during the fourth quarter reduced that period’s annual growth rate to 3.1 percent; it represented a decline of nearly 1 percentage point from the 4-percent annual rate experienced during the third quarter.

The trade data really are quite startling. In October, the U.S. trade deficit in goods and services reached a record $56 billion, having increased by more than $5 billion that month alone. Then, in November, the trade deficit exceeded $60 billion after jumping another $4 billion. November’s trade deficit was $20.3 billion higher than the $40 billion deficit in November 2003, reflecting a year-over-year increase of more than 50 percent for that month. Including its preliminary estimate of December’s trade data, the Commerce Department reported that inflation-adjusted U.S. exports of goods and services declined at an annual rate of 3.9 percent during the fourth quarter, while U.S. imports of goods and services increased by 9.1 percent. The export of goods alone plunged by an annual rate of 6.9 percent during the October-December period, while the import of goods soared by 12.2 percent. Combined, the decline in exported goods and the rise in imported goods effectively chopped 2 percentage points from the fourth quarter’s growth rate, which would have exceeded 5 percent in the absence of the deterioration in the goods trading accounts.

One major reason why the trade deficit has been skyrocketing in recent years is because its personal saving rate has been plunging. To wit, Commerce also reported that personal saving as a percentage of disposable personal income fell to 1 percent in 2004, its lowest level since 1933.

An especially bright spot in the latest Commerce report involved nonresidential (i.e., business fixed) investment, which increased at a double-digit annual rate in the fourth quarter. That double-digit mark has now been reached for six of the last seven quarters.

Inflation-adjusted business fixed investment reached a cyclical peak in the October-December period of 2000, before declining for nine consecutive quarters. During last year’s fourth quarter, business fixed investment finally surpassed that previous peak, which was reached exactly four years earlier.

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