Back on October 18, I explained how the international trade figures fit into the determination of the health of the economy as represented by the Gross Domestic Product (GDP). In that article I talked about the (X - M) factor in the GDP equation, where X represented exports and M represented imports.

In the GDP equation, M is the only term that is negative. And, to the extent that the magnitude of M exceeds the magnitude of X, the (X - M) factor drags down the value of the GDP. If we could just manage to sell more stuff overseas than we bought there, then (X - M) would make a net positive contribution to our economy. But, as I pointed out in the October article, this has not been the case for several decades.

The November trade deficit was one of the smallest in recent history. The Department of Commerce announced today that the November deficit was $7.06 billion, the lowest since March, 1994. This was 13.5% lower than October's revised figure of $8.16 billion.

In November, exports were higher than October and imports were lower. Some analysts have postulated that the November decline in imports was an early warning of the falloff in consumer spending during the holiday shopping season. In other words, the falloff in purchases of foreign goods was simply a manifestation of a generally weak economy. There may be something to this, because the recession year of 1991 had the lowest annual international trade deficit ($29.4 billion) in the last 10 years.

The August-through-November deficit numbers were all comparitively low, averaging out at $7.93 billion. This compares with a January-through-July average of $10.50 billion. But, when the January-through-November total deficit is translated into an annualized figure, we get a figure of $115.87 billion -- the highest annual total since 1987.

Summing up: It looks like the total deficit for 1995 will be the largest in 8 years. However, numbers for the past four months indicate a possible lessening of the difference between exports and imports. But, while a reduction in the (X - M) factor contributes less negatively to the GDP equation, the effect may be offset by a slowdown in consumption of domestic goods and services.

Byline: Lafferty (MF Merlin)