The Trade Balance and Consumption Growth

Menzie Chinn is distressed that last quarter's growth slowdown did not reduce imports:

Econbrowser: The 2005q4 GDP report and the trade balance : As many readers of this blog will recall, in February of last year, Chairman Greenspan saw prospects for the stabilization of the current account and by implication the trade balance (here used interchangeably with the term "net exports") to GDP ratio.... Now, admittedly many of the conditions that Greenspan listed -- for instance fiscal restraint -- have not come to pass. So rather than merely recounting the march downward of the trade balance to GDP ratio, it might be useful to reconsider how strange the current experience is relative to the 1980's episode of dollar depreciation....

During the 1980's episode, the trade balance improved after the dollar depreciation.... In the most recent episode, we would have expected the trade balance to improve sometime in 2004. Indeed there has been some improvement -- or lack of deterioration -- on the non-oil trade balance, but even on that count, one would have expected greater improvement.... Of course, not all other things are held constant. As has often been observed, US economic growth has exceeded other countries. In particular, US consumption growth has been quite rapid... predictions of a stabilization of the trade deficit/GDP ratio implicitly or explicitly rely upon a normalization of consumption patterns. The most recent GDP release indicates that this process may be just beginning.... That being said, it is still remarkable -- to me -- that non-oil goods imports only decreased slightly despite the sharp drop in durables consumption. That tells me that if the adjustment process is underway, it's at its very initial stages.