Don’t Fret About GDP, Celebrate U.S. Exports

(Originally published here.)

The U.S. Bureau of Economic Analysis has released its latest estimates of gross domestic product for 2013. Since the recession ended, real GDP has grown, although the rate of recovery slowed last year.

Lots of interesting things have been happening within various sectors of GDP over the past three years.

The improving economy has boosted tax revenue and lowered the pressure on local governments to tighten budgets, though this has been offset by more severe cuts to the U.S. military and security services.

 U.S. consumers have also been cutting spending, mostly on services:


 One explanation is that growth in personal income after taxes and inflation has slowed.

After two years of relatively robust growth, investment spending by businesses (excluding inventory accumulation) has slowed quite a bit. This has been partly offset by an increase in residential construction. 

Perhaps the best thing about what has otherwise been a lackluster recovery is the change in net exports. Historically, the trade deficit got worse when the U.S. economy was growing and narrowed during recessions. But the past three years have been different. The trade deficit has improved even as the rest of the economy has expanded. That hasn’t happened since 1995. 

What can we expect for 2014? U.S. households should benefit — government spending reductions will be less severe and no additional taxes are on the horizon. Europe is recovering even as other economies are starting to slow. Housing’s contribution to growth is now so small that a slump in construction probably wouldn’t matter much. That leaves business investment as the big wildcard. Will corporate managers decide that they need to expand capacity or will they prefer to hold tight and distribute profits to shareholders? We will soon find out.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)

To contact the writer of this article: Matthew C. Klein at

To contact the editor responsible for this article: James Greiff at


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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