Economist Robert Brusca: Current Account Deficit Raises Recessionary ‘Red Flag’

Thursday, 20 Dec 2012 07:53 AM

By Michelle Smith

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It might not matter whether Congress reaches a last minute deal to avoid the fiscal cliff. The current account deficit is signaling that we may already be in a recession, Robert Brusca, chief economist at FAO Economics, told MarketWatch.

The current account deficit is a measure of the flow of goods, services and investments between nations. That a country has a deficit indicates it is importing more than it is exporting.

The Commerce Department Tuesday reported the U.S. deficit decreased to $107.5 billion in the third quarter, down 9 percent from the second-quarter deficit of $118.1 billion.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

It was the lowest trade gap since the final three months of 2010, according to The Associated Press.

Reuters noted that the smaller deficit should be supportive of the dollar, even as the Federal Reserve continues its aggressive easing policy to boost economic growth.

However, the view may not be so positive when the data is viewed on a broader scale and as compared with historical trends.

Imports not only fell during the third quarter, but also fell during the second quarter, which is rare, according to MarketWatch.

And it definitely raises the recessionary “red flag,” Brusca told MarketWatch.

“The last time imports declined for two quarters was in 2009, the end of a four-quarter slide in imports during the Great Recession,” MarketWatch added.

Imports weaken rapidly when the economy weakens, Brusca explained, adding that fewer imports shows that demand is falling.

“A recession is a real risk,” he warned.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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