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The one thing that could cut the economic recovery short

If you want a picture of the recovery's future, imagine a trade deficit stamping on the economy's face—forever.

Sometimes bad news isn't much news. Take, for example, the latest GDP report. It revised the economy's growth in the fourth quarter of 2014 down from an already disappointing 2.6 percent to an even more disappointing 2.2 percent. But beneath the headlines, the recovery is still chugging along at its slightly-faster-than-before pace. If anything, growth looks a little better than it did before.

Well, maybe. That depends on how strong the dollar gets.

Now let's back up a minute. The economy's 2.2 percent growth isn't as bad as it looks, because the things that got revised down are temporary, and the things that got revised up aren't. Inventory spending, which is notoriously volatile, actually made up more than all the decline. It was revised down 0.7 percentage points, while GDP as a whole was only revised down 0.4 percentage points. Net exports are another noisy number—although, as we'll see in a minute, that might not be the case right now—that subtracted 0.1 percentage points in revisions. Nonresidential investment, meanwhile, added 0.4 percentage points more in revisions, so that the economy's underlying strength, believe it or not, actually increased.

The best way to tell that is to strip out the up-and-down inventory and net export numbers, and to only look at consumer spending, government spending, and private investment—and over a year, not a quarter, to smooth out any weird weather effects, like last year's polar vortex-induced slump. That's called final sales to domestic purchasers, and, as you can see above, it just ticked up to 2.9 percent annual growth. That's the best it's been the whole recovery. That should mean that a lot of today's growth will continue tomorrow, that the economy is finally getting a little bit of momentum that might not be a boom, but is the closest we've been to one in a long time.

But the strong dollar might cut that short. Now take another look at the chart. It's not often that final sales to domestic purchasers is growing so much more than GDP itself. That's because inventories and net exports bounce around enough that they should—there's that word again—make GDP grow faster at least every now and then. But what if the dollar keeps getting stronger, and the trade deficit keeps getting bigger? Then the gap between final sales to domestic purchasers and GDP might become more of a permanent feature than a passing one, and we might not even get a mini-boom. That's a real risk now that the dollar is up 12 percent the past six months, and only looks like it's going to keep going up as the Fed gets ready to raise rates while the rest of the world is cutting them. To give you an idea how big of one, net exports just took 1.2 percentage points off growth.

That's been the story of the recovery: one step forward and one step back. Whenever one part of the economy takes off, like consumer spending has now, another falls off, like net exports. The difference now, though, is that, for the first time, you can see the potential for the recovery to break out of this cycle, and finally take two steps forward. Cheaper oil is helping households, austerity is over, and lower unemployment means that, at some point soon, residential investment should break out of its doldrums as young people move out of their parents' basements. But there's only so far these things can grow—people can't keep spending more unless they save less—which is why we can't afford for the trade deficit to be a persistent drag on GDP.

Everything's in place for a boom. Everything except the dollar.