Global trade is collapsing. In March, the U.S. trade deficit took a big hit, dropping 13.8 percent amid an $8 billion contraction in imports and a $2 billion shrinking of exports, according to data compiled by the U.S. Census Bureau.
That’s usually not a good sign, U.S. Commerce Department data shows. Narrowing trade gaps and drops in imports and exports have coincided with recessions in 2008, 2001, 1991, 1980, and 1975.
That is because as imports from overseas dry up, it is an overall indicator of global trade slowing down. And there is little question imports have been slowing down. They are down 8.6 percent off their average 2014 levels.
Exports are way down too, down 9.5 percent from 2014.
So, what does it all mean?
While not perfect, the relationship between trade slowdowns and eventual recessions is a fairly reliable indicator. When both imports and exports take a hit that can often indicate or predict a recession.
And with continued stagnation in Europe plus the correction in China and another slowdown here, perhaps we really are on the cusp of the next recession. Which averaging one every six to seven years, we’re due anyway.
It all comes as the Federal Reserve considers another hike in interest rates, which could be another red flag. The Fed tends to hike rates before the economy goes into negative territory — perhaps so they simply have room to maneuver afterward.
A rate hike in June, then, could be read a signal of capitulation by the Fed on this period growth.
With employment population ratios still sliding, incomes flat after years and Americans feeling bad about the economy, a recession may reflect the overall mood of the nation.
The nation still has too much debt. Younger Americans are failing to enter the labor force. And robust growth is still nowhere to be found.
The economy has not grown above an inflation-adjusted 4 percent since 2000, and not above 3 percent since 2005.
The economy stinks.
After trillions of dollars of fiscal and monetary stimulus, bailouts and subsidies, the only people who seem to be getting ahead are politically connected insiders. In the meantime, those on the outside of the favor factory in the Capitol feel they are getting screwed.
The narrowing trade deficit is just one symptom of the weak economy. But the real deficit is one of public confidence — in Washington, D.C. to do anything about it.