Trade Disaster

The GDP report for the last Quarter 2004 is out, and it is a disaster (source Reuters ).

The U.S. economy grew at a weaker-than-expected 3.1 percent annual pace in the final quarter of 2004, its slowest since the beginning of 2003 as the country's trade performance deteriorated and inflation picked up

The GDP report painted a bleak picture on trade, showing a steep 3.9 percent drop in total exports during the fourth quarter. Imports of goods and services surged at a 9.1 percent rate, more than double the 4.6 percent third-quarter rise.

The drop in total exports can be explained superficially as lack of Aircraft Sales and with lowered industrial machinery Sales due to the Christmas season. This masks the real rationale, though, and stands as fundamentally untrue. Industrial machinery is in short supply in the World economy, and Sales are brisk. American industrial machinery Sales are down because American Producers are passing along all Material Cost increases onto foreign Customers; this resultant from the fact base Costs cannot be covered by the domestic American market for industrial machinery, which has disappeared due to Imports of foreign Consumer Goods. Aircraft Sales remain a specialized market with limited deep-pocket Consumers, and with stiff Competition with higher R&D budgets along with better Support Services.

The Federal Government insistence on borrowing almost a quarter of its Operating revenues from foreign lenders triples the adverse effect of the Trade deficit. We must take steps to limit Consumer Goods Imports, and contain the Federal deficit, or expect heavy loss of Standard of Living within this administration's term. Devaluation of the Dollar will not help Exports, not when external foreign Materials pricing advances more rapidly than does Consumer Goods Import pricing. American Producers need an American market for Goods in order to spread the accelerating Costs of Material price increases; otherwise, American Producers will lose their competitive advantages in the World economy.
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The GDP report reflects another hazard:

The GDP report showed that personal spending -- which fuels about two-thirds of U.S. economic growth -- increased at a 4.6 percent annual rate in the fourth quarter, slowing from the third quarter's 5.1 percent rate.

Its employment cost index rose 0.7 percent in the last three months of 2004, as salaries and wages grew at their slowest rate in nearly six years. Wall Street had forecast the index, a broad gauge of what employers pay in wages and benefits, would rise 0.9 percent between October and December, after a 0.9 percent gain the previous three months.

Economists wax estatic over the latter data, but should they be? Consumers are increasing their consumption at approximately twice the rate as their Income. Economists provide discount for this, stating that Corporate dividends are increasing. Several facts should be noted: Eighty percent of the Consumption being conducted could not come from Consumers who make three percent of their Income from Corporate dividends; Sixty percent of the Corporate dividends are being reinvested or spent as various Taxes; and almost all the increase in Consumer Spending comes from aggregation of Consumer Debt. Household Assets/Debt ratios are already too low, with high Mortgage payments and high-interest Credit Card debt. The basic American Taxpayer, the Employees, are getting debt-ridden.

One of the Author's infamous predictions:
Total Consumption 2005 will not exceed Total Consumption 2003. lgl