The Fall And Stabilization of Exports: Fact or Fancy

May 27, 2009

At the height of the global recession, seasonally adjusted merchandise exports fell between October and January at annualized rates of 77.0% in Japan, 61.9% in the United States, and 60.4% in Germany.  Over the prior three months to October 2008, exports had tumbled 43.4% annualized in United States and by 40.1% in Japan, but they were unchanged in Germany.  And in the three months between April and July of 2008, U.S. goods exports had actually soared 45.3% at a seasonally adjusted annual rate (saar), and exports had dropped onlly 1.9% saar in Germany and by 1.2% saar in Japan.  Japanese export growth in the three months to April 2009 had almost improved to zero; the actual pace was -0.3% saar.  April data are not yet available for Germany or the United States, but export growth  between December and March (i.e., during 1Q09) was less negative at -28.1% saar and -27.3% saar, thus with an improving second derivative.

At the height of the implosion of international commerce, exports were tumbling even more rapidly than such did in the Great Depression.  But signs that export declines are already flattening contrasts dramatically with the relentless four-year period of decrease in 1929-32 captured in a famous graph that can be viewed by scrolling down to chart 8 after clicking here.

In truth, not enough time has elapsed to be assured that the flattening of exports doesn’t represent a temporary respite from a storm that will resume within the next few months.  The stock market crash of October 1929 evoked an immediate plunge in real economic activity in the final quarter of that year, but a market recovery and better behaving real economy in the spring of 1930.  The shift was reminiscent of what has occurred since early March of this year and convinced the Fed and U.S. fiscal authorities in 1930 that additional policy stimulus was no longer required.  Dropping their guard turned out to be a terrible mistake, as the economy again began falling apart in June of 1930.  Then, like now, tremendous anxiety existed over the ramifications of massive fiscal and monetary reflation if pursued for too long.  I point this out not dismiss the importance of acting expeditiously and forcefully to rein in expansive policies once it is safe to do so but rather to underscore that the consequences may be even worse if policymakers act too prematurely, which they did almost 80 years ago.  Similar policy errors were committed much more recently by Japanese officials, who ill-advisedly implemented a sales tax hike in 1997 and a central bank hike in August 2000.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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