The U.S. Trade Deficit and the New strongEconomystrong - St. Louis Fed.pdfVIP

S EPTEMBE R /O CTOBE R 19 99 Michael R. Pakko is a senior economist at the Federal Reserve Bank of St. Louis. Gilberto Espinoza, Daniel Steiner, and Stephen Majesky provided research assistance. The U.S. Trade Figure 1 Current Account Balance De cit and the Annual Data $ Billions “New Economy” 50 0 Michael R. Pakko –50 he performance of the U.S. economy –100 Tduring the 1990s has been universally –150 hailed as stellar. Economic growth has been strong, unemployment has reached its –200 lowest rate in over a generation, and infla- –250 tion has remained relatively low. Consumer 1960 1965 1970 1975 1980 1985 1990 1995 2000 confidence has been high, helping to main- tain strong growth in consumption expen- ditures, and investment spending has experienced a sustained growth rate that is unparalleled during the second half of the U.S. international trade position, the current twentieth century. Many have gone so far account. Simple logic suggests that the as to declare that current conditions and downward trend established during the prospects for the future represent a “new 1990s cannot be maintained indefinitely economy” or “new paradigm” in which —if it were to do so, the United States would these favorable trends might continue ultimately exceed its ability to pay for the indefinitely.