Author: Alissa Tafti
A number of important macroeconomic factors contributed to changes in U.S. trade in 2015. They included the decline in world crude petroleum prices; lower than expected levels of global economic growth, particularly in China and other emerging markets and developing economies, which led to sluggish global demand; and the appreciation of the U.S. dollar.
U.S. growth in real gross domestic product (GDP) in 2015 matched the 2014 rate of 2.4 percent but was driven by different factors. U.S. imports of goods and services grew at a higher rate in 2015 than in 2014 (by 4.9 percent in 2015, compared to 3.8 percent in 2014). At the same time, nonresidential fixed investment and the export of goods and services grew at a lower rate, with exports of goods contracting. This contraction resulted in net exports contributing -0.64 percent to GDP growth, from -0.18 percent in 2014. However, the declines were offset by increases in personal consumption (2.1 percentage points), residential fixed investment (0.28 percentage points), private inventory investment (0.17 percentage points), state and local government spending (0.15 percentage points), and a smaller decrease in federal government spending than in previous years.1
Total U.S. industrial production fell by 0.7 percent in 2015, the first year of decline since 2008.2 The energy sectors constituted a smaller share of total production in 2015, due to lower levels of production in energy-related products, particularly in oil and gas well drilling and primary energy.3 However, these decreases were largely offset by production increases in certain non-energy sectors, including motor vehicles and parts, semiconductors and related electronic components, and consumer goods.4
The U.S. dollar continued to appreciate in 2015, growing against the broad dollar index by 10 percent from January 2, 2015 to December 31, 2015. This change was due in part to the global slowdown in growth and to expectations of U.S. economic growth relative to the world.5 The appreciation of the dollar made U.S. exports more expensive in foreign markets, while making U.S. imports less expensive.
As in 2014, the Federal Open Market Committee maintained the target range for the federal funds rate between 0 and 0.25 percent throughout most of 2015. However, in December 2015, as a result of improvements in the labor market and expectations that inflation will reach the 2 percent target in the medium term, the Committee raised the rates for the first time in nine years, increasing the target range for the federal funds rate from 0.25 to 0.5 percent.6
Decreases in global economic growth lowered worldwide demand for U.S. goods. Global GDP growth fell from 3.4 percent in 2014 to 3.1 percent in 2015, in large part a result of decreases in growth in emerging markets and developing economies, particularly China, Brazil, and Russia. Growth in these economies declined for the fifth consecutive year; their GDPs increased only 4.0 percent in 2015, down from 4.6 percent in 2014. China’s growth slowed more than expected,7 dropping from 7.3 percent in 2014 to 6.9 percent in 2015, as Brazil and Russia’s economies contracted. Within the advanced economies, the euro area experienced higher growth in 2015 than in 2014 (1.5 percent versus 0.9 percent), while other advanced economies faced declining growth rates. For example, the United Kingdom dropped to 2.2 percent from 2.9 percent in 2014 and Canada fell from 2.5 percent to 1.2 percent.8
The slowing of Chinese growth and the subsequent rebalancing of economic activity in China had important spillover effects on global trade. Both imports into and exports from China declined at a quicker pace than anticipated, negatively affecting global trade flows. Other emerging markets and developing economies experiencing slow or negative growth, particularly Brazil and Russia, also imported less, further reducing trade flows worldwide.9 Lower crude petroleum prices also had direct and indirect effects on the values of trade flows. In part, they did so by reducing the costs of products that are intensive in the use of energy-related products. For example, as discussed below, U.S. exports of all products declined by 7.2 percent and U.S. imports of all products declined by 4.5 percent in value terms in 2015, but when changes in prices, including the decline in crude prices, are taken into account, real U.S. exports declined by only 0.5 percent and U.S. imports increased by 4.6 percent.10 Further, again taking the changes in prices into account, real U.S. exports of petroleum products rose by 6.4 percent, while real U.S. exports of non-petroleum products decreased by 1.1 percent.11 (See both the “Energy and related products“ webpage and the special topic chapter.)
1 USDOC, BEA, National Income and Product Accounts Gross Domestic Product, March 25, 2016, table 1, “Real Gross Domestic Product and Related Measures” and table 2, “Contributions to Percent Change in Real Gross Domestic Product.”
2 Federal Reserve, “G.17 Industrial Production and Capacity Utilization,” February 17, 2016, table 1.
3 Primary energy includes crude petroleum, natural gas, nuclear electric power generation, support activities for oil and gas operations, coal mining, and hydroelectric power generation. https://www.federalreserve.gov/Releases/g17/SandDesc/sdtab2.pdf, 21.
4 Federal Reserve, “G.17 Industrial Production and Capacity Utilization,” February 17, 2016, table 2.
5 CEA, The Annual Report of the Council of Economic Advisers, February 2016; “Federal Reserve, H.10 Nominal Broad Dollar Index—Daily Index,” May 2, 2016. https://www.federalreserve.gov/releases/h10/summary/indexb_b.htm. The broad dollar index is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners.
6 Federal Reserve, “Federal Reserve issues FOMC statement,” December 16, 2015.
7 IMF, WEO Update, January 2016, 1.
8 Ibid., table 1.
9 Ibid., 1.
10 USDOC, Census, FT 900, May 4, 2016, Exhibit 11.