Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
On January 28, the Bureau of Economic Analysis (BEA), released preliminary GDP numbers which stated that although American production grew at a 3.2% rate in the fourth quarter, real American incomes only grew at a 1.3% rate. The difference was the price of imports. Import prices rose at an 18.9% rate.
Specifically, nominal GDP grew by at a 3.4% rate, while inflation in the prices received by American producers grew at a 0.3% rate. Meanwhile, prices paid by American purchasers grew at a 2.1% rate making the growth in American purchasing power just a 1.3% rate.
Table 4 of the press release breaks out the inflation rate for products purchased by Consumers, Investors, and Governments:
Apparently, foreign prices (largely due to relative exchange rates) went up much faster than American prices during the fourth quarter. The good news is that American products were getting more competitive in world markets. The bad news is that American purchasing power was only growing at a 1.3% pace, due to the inflation in the prices of imports.
These statistics give us a taste of what would happen within the American economy if we continued to bring trade toward balance. American sales in world and American markets would expand. American producers would have larger revenue and would likely invest in order to expand American production. In the long-run American incomes would grow due to new jobs in our trade-oriented sectors. But, in the short run, American purchasers would not see their buying power growing at all fast due to the rising prices of imports.
Comment by Howard Richman, 2/24/2011:
The last paragraph is not quite accurate. It says, "American producers would have larger revenue", but it should say "American producers would have larger sales."
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