Dude, Where's My Recession? The Series

Thanks to today's trade numbers, it now looks as if the economy grew much faster than 1.9 percent in the second quarter. In their preliminary GDP estimate, government bean counters thought the trade deficit would increase. Instead, it narrowed as exports surged 4.0 percent vs. a 1.8 percent rise in imports. As result, the economy probably grew at least 2.9 percent in the second quarter, if not a bit more. How will this play out? The econ team at Global Insight is worried:

The question for the future is how much support trade can continue to provide. Recent signals from Europe and Japan have suggested a growing risk of recession. Of course, a key reason that these economies are suffering is that the U.S. is growing at their expense. But the more severe their slowdown, the greater the likelihood that it will begin to cool down the boom in exports.

But Brian Wesbury and Bob Stein over at First Trust Advisors are more upbeat:

The decline in the trade deficit is not like previous declines during periods of slow economic growth. Past declines have been due to slower imports, not rapidly rising exports. Much of the decline in the trade deficit is due to the drop in the exchange value of the dollar versus earlier this decade. Recently, the dollar has started to strengthen again. Rather than undermining the US's trade gains, the recent strengthening of the dollar may actually accelerate the decline in the trade deficit over the next twelve months as the short-term impact of dollar strength and the long-term impact of dollar weakness both tend to reduce the trade deficit. This is due to what economists call the "J-Curve," which means shifts in exchange rates lead to counter-intuitive results in the short-run.