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Services Are The Engine Pulling The Trade Express...

Economic Trends


No one can gainsay America's stellar performance on the trade front. Indeed, improvement in the trade balance is responsible for over half of the rise in real gross domestic product since 1988.

Although much of this seems to be the result of the synergy between a declining dollar and a newly "lean and mean" industrial sector, economist Martin Barnes of Bank Credit Analyst says the "real news is the continuing dramatic improvement in the international performance of the U.S. service sector." According to the latest gdp data, the services trade surplus hit a $67 billion annual rate in the first half of this year, providing a major offset to the $90 billion deficit in merchandise trade.

"Since 1988," points out Barnes, "the growth in the services trade surplus has accounted for a staggering 33% of the rise in real gdp, compared to less than 20% attributable to the narrowing of the merchandise trade deficit."

One reason, of course, is that U.S. service exports--which include financial and business services, telecommunications, insurance, tourism, transport, and licensing fees and royalties--have been soaring (chart). In current-dollar terms they have expanded from 36.7% of goods exports in 1989 to nearly 44% today.

Back at home, however, is where the competitiveness of U.S. services really shines. Although service exports in real terms have grown by a hefty 34% since 1988, for example, real service imports have risen a mere 2.1%. By contrast, while real U.S. goods exports expanded by 27% in the same period, real goods imports (which are larger than exports) still rose 14.8%. Merchandise imports, moreover, are expected to surge dramatically once the recovery takes hold.

While the growth in service exports has been broad-based, some categories are particularly notable: Exports of business, technical, and professional services, for example, have jumped from $6.8 billion in 1990 to an $11.1 billion annual rate early this year, producing an $8.2 billion trade surplus. And travel exports--mainly the money foreign visitors spend in the U.S.--were running at a $54 billion annual rate at last count, with a surplus of nearly $12 billion.

"The weak dollar," says Barnes, "will ensure that net exports of services will continue to grow strongly."GENE KORETZ

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