Trade deficit--cloud or silver lining?

I spent most of the day dealing with other things, so I will simply note some of the excellent discussion of the trade numbers at the usual blogs with a brief comment at the end.

Macroblog sees the silver lining and calls our attention to a Chicago Fed Letter on the sustainability of the trade deficit by Michael Kouparitsas. Brad Setser is more optimistic than he was last month in the post on his blog, but he lays out a critique of the Kouparitsas article in the comments of macroblog. Kash at Angry Bear has two posts. In the first, he concludes:

Thinking about it this way reminds us that the US's voracious appetite for imports is not the result of low labor costs in China, but rather the result of a fundamental imbalance in which the US consumes more than it produces of virtually all types of goods. In many of the countries with which the US runs a trade deficit labor costs are actually higher than in the US, but since those countries don't consume everything they produce the US imports from them. The cause of the trade deficit is therefore clear: it is simply the direct result of the US's lack of saving.

PGL offers critique of the Kouparitsas paper in a separate post. Calculated Risk has the charts. The Prudent Investor is not impressed by the supposed good news.

My two cents:

I don't put a lot of emphasis on big swings in monthly data for some of the more volatile statistics, like the trade deficit. Yet, if you want to contribute to the discussion, you have to find a way to tell a tale about the numbers as they are presented. So the question is how today's news affects my expectations going forward.

Last month's trade figures really worried me. I mean when Brad Setser starts throwing around numbers like $900 billion, it makes you wonder. And do I need to remind you that it was about a month ago that we started going back and forth on the whole "soft landing" or "hard landing" business? But amid my worry, part of me wondered if last month's numbers were an aberration.

The same is true tonight. I wonder if today's numbers were an aberration. I'm inclined to think it's one or the other, and we won't know for another few months. So today's numbers increase the width of my confidence interval if I was to forecast the trade deficit, but that's about all. There's not much more you can say about headline numbers as bad as last month and as good (or, not as bad) as this month.

Looking behind the headlines, I don't think we've turned a corner yet (or if we have, it will take a couple months before we really know it). The issue is, as Kash points out, a lack of savings. Falling oil prices are great, but it's not enough. I don't see a lot of compelling reasons for the trade deficit to shrink much in the near term. What you think about the longer term depends on a lot of other things (hard/soft landings). I'm willing to wait another month before revising my expectations very much.

Oh, and in the blog-find of the day, macroblog links to Economics Unbound by Michael Mandel of BusinessWeek.