Macroeconomic purgatory

9 April 2009 By Martin Hutchinson

February s figures show the perennial US payments deficit has halved. However overall imbalances have worsened the budget deficit is larger than the trade one ever was. With GDP falling and consumption only modestly down, that puts huge pressure on investment.

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The US trade deficit narrowed to $26bn in February from $36.2bn in January. Exports increased by 1.6% to $126.8bn, while imports declined by 4.9% to $160.9bn. Exports were down 16.9% from February 2008 and imports down 28.8%; the trade deficit was down by 58% over the year.

Real February personal consumption expenditure was down 1.4% from the previous year.

The expenditure definition of GDP is given by Y = C + I + G + NX, where:

Y is GDP

C is consumption

I is investment

G is government spending

NX is net exports, or exports minus imports.

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