Exports in the Recovery (II)

Following up on my previous post on the export contribution in the recovery (averaging 2.6 ppts since the trough), here are some additional observations. First, export growth in the current recovery has been substantially greater from the trough than in the last three recoveries.

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Figure 1: Log real export growth relative to NBER trough. Source: BEA, 2011Q3 advance release, NBER, author’s calculations.
Second, this characterization is less pronounced, but not overturned, once one takes into account the severity of the drop-off in exports during the recession. (And is less than that observed in the recovery from the 1990Q3-91Q1 recession).

 

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Figure 2: Log real exports relative to NBER peak. Source: BEA, 2011Q3 advance release, NBER, author’s calculations.

Third, export growth has been substantially greater than in the past three recoveries even after accounting for the fact that there is some import content in US exports (vertical specialization). In fact, since vertical specialization declined in 2009, then exports adjusted for vertical specialization have rebounded even faster than unadjusted.

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Figure 3: Log real exports relative to NBER trough, accounting for vertical specialization/production fragmentation, using estimates from Johnson and Noguera (forthcoming), interpolated using quadratic match. Source: Source: BEA, 2011Q3 advance release, NBER, Rob Johnson, author’s calculations.

Here I am using adjusting the standard series using estimates provided by Rob Johnson. This is related to work by Johnson and Noguera forthcoming in JIE. (Since the adjustment factor is available only up through 2009, I use assume the factor at 2009 levels thereafter). It could be that 2010 levels of vertical specialization increased again, as the composition of trade shifted back toward durables, in the recovery. For a discussion of this issue of composition and measured vertical specialization, see Bems, Johnson, Yi (AER, 2011), ungated wp version here, as well as these posts: [1] [2] [3] [4].

A big question, of course, is how exports will evolve as the crisis unfolds in Europe. Such doubts were voiced in a WSJ article, discussing the September trade release:

“I just can’t really see [exports] continuing to perform as well as they have done,” said Paul Dales, an economist with Capital Economics, a consulting firm. “It’s pretty clear that things aren’t going well from a trade point of view, and that the slowdown in the euro zone is starting to have an effect on the U.S.”

Evidence of that slowdown abroad was provided by yesterday’s release of OECD’s Composite Leading Indicators for September. Removal of that external source of growth makes it ever more incumbent upon policymakers that we sustain momentum by maintaining fiscal stimulus.

This post originally appeared at Econbrowser and is reproduced with permission.