When Americans buy less from abroad for two consecutive months, something is up. What may not be up is the economy.
This has happened for the last two months for which data are available. The U.S. balance of payments is rising, as always, but at a lower rate.
The demand for foreign goods is slowing. This is one sign of a recession. If this continues for the next two months, it will be a clear recession indicator.
This has no direct connection with the fiscal cliff. There are constant stories about a deal being imminent, none of which pan out. But investors want to believe that a deal will postpone the day of reckoning. Of course, this will mean a larger deficit. Investors don’t care about the deficit. They care about rising taxes. I’m with them.
But taxes will rise. If they rise on the super-rich, this will reduce investment. It’s easier to spend money than take new risks that are going to be taxed more heavily.
The evidence from trade patterns is more reliable than rumors about avoiding the fiscal cliff.
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