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By Jason Stipp | 10-14-2010 11:35 AM

Trade Deficit Shouldn't Sink GDP Again

The U.S. trade deficit should have only a neutral or mildly negative effect on 3Q GDP, which may hit 2.5%, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. We got the government's balance of trade data on Thursday for August. The trade deficit expanded to $46 billion, that's up from $42 billion that we saw in July.

Here with me to talk about what he is looking at in the report and why the report is so important is Morningstar's Bob Johnson. He is director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So, give me a little sense of the trend, because we did go up in August from July, but you also have to take into account what was happening before that as well. What's the trend been in the trade deficit for the last few months?

Johnson: We've been in the low $40 billions, kind of $40 billion, $41 billion, $42 billion for several months, and that have been the trend. And then in June, the number really spiked upward dramatically, close to $50 billion deficit in one month. And some of it was from pharmaceuticals, diamonds; some very odd one-time factors. And the number just went sky high at just the wrong time, and then it dipped back in July to $42 billion, which was about where it had been, and now we're back up to $46 billion.

So, it's clearly not as bad as the stunner we had in June, but we did move the wrong direction.

Stipp: Do you think that that move to $46 million could potentially be a new baseline, or do you think we're still working through some anomalies in the data that we've seen over the last few months?

Johnson: Well, I think the number -- the last three month average is magically the same $46 billion we reported [for August]. So I think we've probably set a new baseline. There were some odd things, a few odd things this month, but I think the $46 billion probably does represent a new baseline.

Stipp: Okay, so let's dig in and talk about some of the data from August that that was underlying the headline number. Exports obviously seem to be an important thing for us right now. What was your take on the export number, and where are we there?

Johnson: The trade that was obviously made up two components, the exports and the imports, and the exports were basically flat, and the imports chugged up at the $4.1 billion rate, so almost all the bad news came on the import side of the house. It was up fairly big, and the exports were flat.

Now the interesting thing when you tear into the export number is that, again we were flat, but the airplane part of it was a major part. It was almost $2 billion decline month-to-month. You know the big air shows and a few other things happened, and so anyway we were off considerably in aircraft, but hopefully [that is]  something that reverses itself at some point down the road here.

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