There Is Some Upside to a Weaker Economy and Dollar

The dark clouds of a weaker economy and dollar does have some silver lining. From the WSJ:

Retailers will be reporting September sales today, and it doesn't appear they'll be pretty. The International Council of Shopping Centers estimates sales at stores open for a year or more will be 2% above last year's level -- barely enough to keep up with inflation. Meantime, the Commerce Department is set to report the August trade balance. Economists polled by Dow Jones Newswires estimate the trade gap narrowed a bit to $59 billion from $59.2 billion in July and a record $67.6 billion in August 2006.

The two -- the weakness at the stores and the drop in the trade deficit -- are related. A large chunk of what gets sold to consumers these days gets produced overseas. When spending slows, imports to the U.S. are affected.

As a result, past U.S. consumer slowdowns were seen as a major threat to the world economy. But now growth seems to be bubbling along outside the U.S. That, in combination with the weak dollar, is increasing demand for U.S. goods and services.

A sign of how rapidly the trade situation is changing: In August, 41% of the containers shipped from the Port of Los Angeles were loaded, up from a year-earlier 32%.

With exports rising and imports slowing, the U.S. trade deficit has been getting whittled away. That's one important bit of good news for an economy facing plenty of challenges right now. Rising exports underpin domestic growth, slowing imports mean the pain of a consumer slowdown is dispersed far and wide and a narrower deficit means Americans are in effect saving more of what they earn.