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For immediate release: February 10, 2010

Durable Goods Decline Weighs on Global Trade, Says Dallas Fed’s Economic Letter

DALLAS—The financial crisis caused a decline in worldwide demand for durable goods that contributed heavily to the recent plunge in global trade, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.

In “Durable Goods and the Collapse of Global Trade,” senior economist Jian Wang finds U.S. households cut back substantially on durables purchases in the past two years, which helps explain why U.S. imports have declined much more in the current recession than in the 2001 recession.

“If U.S. households’ frugality endures, demand may remain relatively soft in the near future,” Wang writes. “A quick global trade rebound may depend on trade-surplus countries boosting domestic consumption.”

Globally intertwined mechanisms including financial markets, trade credit and vertical specialization likely exacerbated the plunge in worldwide demand for durable goods, the author states.

While there’s little evidence that new import barriers played a role in the latest trade collapse, protectionist pressures are rising worldwide and could become a drag on the trade rebound in 2010, Wang says.


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