Trade Deficit Blow Out

Remember when we thought the U.S. was going to export our way back to prosperity riding European and emerging market aggregate demand (that wasn't a crazy statement even a year ago... promise)?

BusinessWeek details the reality:

The trade deficit widened more than forecast in March as American demand for crude oil, computers, automobiles and televisions propelled imports to a record.

The gap grew 14 percent to $51.8 billion, the Commerce Department reported in Washington today. The median estimate of economists surveyed by Bloomberg News called for an increase to $50 billion. A 5.2 percent jump in imports, the biggest in more than a year, swamped the 2.9 percent gain in exports, which also reached a record.

Change in Trade Balance - Chain-Weighted 2005 $$ (i.e. real change in 2005 dollar valuation)

With the re-emerging crisis in Europe since the March trade balance print (and what will likely be a resulting oversupply of goods coming from emerging Asia), don't expect this trend to slow any time soon.

Source: Census

Trade Deficit Narrows

Bloomberg details:

The trade deficit narrowed in October to the lowest level of the year, reflecting a drop in imports that will help give the U.S. economy a lift.

The gap shrank 1.6 percent to $43.5 billion, smaller than projected, from $44.2 billion in September, Commerce Department figures showed today in Washington. Purchases from overseas fell to the lowest level since April, due almost entirely to a plunge in demand for petroleum.

Imports of capital goods, like computers and aircraft, and consumer goods climbed, showing spending by American companies and households is keeping the economy growing. Exports to China and South and Central America reached records, indicating demand from developing nations that is benefiting companies like Dow Chemical Co. (DOW) may cushion the U.S. from any slowdown in Europe.

The below chart outlines the 12-month change in real net exports by category (as well as the breakdown between the change in real imports and exports). As can be seen, the trade deficit is improving, due to improved industrial supplies and consumer goods trade balances.

Source: Census

Breaking Down Trade

While the U.S. still imports MUCH more than we export ($43.1 billion more in September alone to be exact), the trend has shown positive signs. The below chart outlines the year-over-year change in the real (adjusted for inflation) level of imports and exports, broken out by petroleum and non-petroleum trade. Note that an increase in exports is shown as a positive contributor below, while an increase in imports is shown as a detractor.

What can be seen:

• The pace of growth in non-petroleum imports is down significantly over the past year
• The pace of growth in non-petroleum exports is relatively flat over that time
• Petroleum imports are actually down in real terms (i.e. we are importing less)
• The net change is actually positive (i.e. trade is a positive contributor to GDP)

The good news is that this net decline in trade balance has not been met with reduced consumption (i.e. it is not a reflection of reduced aggregate demand). Potential bad news is that petroleum trade is down (good for the long-term independence of the U.S., but a potential short-term signal of an issue - see Bonddad Blog for further detail) and that trade is down not because we are consuming goods made in the U.S., but rather because businesses paused on rebuilding inventories (see here).

In other words, it seems we are simply consuming past imports, thus when inventories are rebuilt, the above "should" revert to negative territory unless aggregate demand collapses. Something else to keep an eye.

Source: Census

Trade Balance Improves in April

The WSJ details:

The U.S. deficit in international trade of goods and services declined 6.7% to $43.68 billion from a downwardly revised $46.82 billion the month before, the Commerce Department said Thursday. The March trade gap was originally reported as $48.18 billion.

The April deficit was much smaller than Wall Street expectations, with economists surveyed by Dow Jones Newswires having predicted a $48.3 billion shortfall.

A rebound in oil prices to levels not seen since the 2008 spike erased the modest reduction in the trade gap from late last year. But Nymex crude futures have settled back to around $100 a barrel after surging to nearly $115 a barrel in early May.

In other words, expect the fall in both the demand and the price for oil to continue to reduce the trade balance going forward in both real (due to demand) and nominal (due to price) terms.

And over the longer run...

The below chart compares April 2010 and April 2011 trade balances* for a number of items in real terms.

Note the big improvement in industrial supplies (though this may be due to the disruption in Japan - a drop of $3.2 billion in imports came from March alone) and the big jump in consumer goods imports. The latter is a trend I imagine will continue as consumers look for cheaper and cheaper goods that are increasingly produced outside of the U.S.

Not broken out is trade in oil, which improved greatly in real terms; exports up by $700 million, imports down by $2 billion (the problem is the price more than made the trade balance worse in nominal terms).

Source: Census

Mind the Gap

Real exports rising, while real imports falling = a boost to GDP.

Source: Census

Trade Imbalance Increases

Bloomberg details:

The trade deficit widened more than forecast in August as growing U.S. demand for foreign autos and capital equipment swamped gains in exports.

The gap grew 8.8 percent to $46.3 billion, exceeding the $44 billion median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed today in Washington. Imports rose 2.1 percent, while exports increased 0.2 percent.

The result is that net exports will continue to be a drag on GDP, but the optimist would note that the most recent datapoint (August) was before the collapse in the US dollar, which should (all else equal) make U.S. goods / services more attractive (i.e. cheaper) to foreign businesses / consumers. The opposite point of view on this is that it will simply cause the imports we need (i.e. low cost consumer goods from China / petroleum) to be more expensive.



Source: Census

Trade Balance Narrows in July

The WSJ details:

The U.S. trade deficit contracted sharply in July, posting its biggest drop in 17 months as exports of airplanes surged and U.S. demand for imports fell across the board.

The U.S. deficit in international trade of goods and services narrowed by 14% to $42.78 billion from a downwardly revised $49.76 billion the month before, the Commerce Department said Thursday. The June trade gap was originally reported as $49.90 billion.

U.S. exports expanded 1.8% to $153.33 billion, the highest level since August 2008, from $150.57 billion in June. Imports registered their biggest decline since February of last year, falling 2.1% to $196.11 billion from $200.33 billion in June.

Source: Census

Not Sustainable... Trade Edition

What happens when the U.S. stimulates consumer demand when the rest of the developed world pushes austerity measures.... the below.

Source: Census

Trade Imbalance Back

Marketwatch details:

The U.S. trade deficit widened to the highest level in 18 months in May as imports and exports alike bounced back after declines in April, government data showed Tuesday. The deficit, the difference between the nation's exports and imports, reached $42.3 billion in May from $40.3 billion in April, the Commerce Department said.

It marked the largest trade gap since November 2008. The one-month worsening in the deficit is the biggest since February. The widening of the deficit confounded expectations. Analysts surveyed by MarketWatch had expected the May gap to narrow to $38.8 billion.

The larger-than-expected trade gap may cause economists to reduce their forecasts for second-quarter gross domestic product. A worsening trade gap is a drag on growth.

For more detail on the "why" of this increase, Michael Pettis has a great post explaining it here. The high level summary:

I have little doubt that as the US trade deficit rises, a lot of finger-wagging analysts will excoriate US households for resuming their spendthrift ways, but of course the decline in US savings and the increase in the US trade deficit will have nothing to do with any change in consumer psychology or cultural behavior. It will be the automatic and necessary consequence of the capital tug-of-war taking place abroad.

Source: Census

The World is Ending... Time to Buy?

Dead Cats Bouncing details what the two year Treasury bond is indicating:

There are growing concerns that the U.S. risks a Japanese post-bubble scenario of endless economic stagnation, as reflected in tumbling implied inflation expectations in the TIPS market. The yield on 2-yr Treasury Notes yesterday dropped to its lowest level ever and as short-term Treasury yields typically track the nominal GDP growth (they effectively present a risk-free alternative to having 'geared' nominal GDP exposure via equities and corporate debt) current levels suggest that the market is expecting that an extended period of recessionary conditions and very low inflation. Treasury yields seem to be pricing in the double-dip recession that many economic bears have been calling.

Call me crazy, but ALL this negativity (justified in most cases) makes me think we are due for a short term pop in risk assets. As Meb Faber detailed on his World Beta blog a month back:

On the monthly time frame, I examined asset class performance after a really bad month.

The take-aways from this study were:

• It does not pay to buy an asset class after a really bad month for the following 1 month.
• 12 Months later the return is not much different than average.
• 3 and 6 month returns, however, are stronger. You pick up on average about 3-4% abnormal returns buying after a terrible month.

A simple strategy would be:

After an asset class has a terrible month, wait a month then take a 2 month position. i.e. after this (probably) terrible month, buy July 1 for a two month hold. Those with a little longer time frame could move out to a 5 month hold.

Just dipping in my toe only (not willing to risk much capital for a pure behavorial trade / bet). Wish me luck...

Source: Federal Reserve

Trade Deficit Widens to December 2008 Levels

Marketwatch reports:

Trade of goods and services across U.S. borders softened in April and the trade deficit rose to the highest level in more than a year, the Commerce Department estimated Thursday. Imports of goods and services dropped 0.4% to a seasonally adjusted $189.1 billion while exports declined 0.7% to $148.8 billion. The trade deficit (the difference between exports and imports) rose to $40.3 billion in April from a downwardly revised $40 billion in March. It was the largest deficit since December 2008.

While volume was down in April, the below chart shows the rebound we have seen in overall trade since volume bottomed last spring. Of interest... nominal imports have risen more than exports in percentage terms (~2.5% more) reflected in the wider trade deficit (which is also due to imports having a much higher starting balance as of last spring). The bad news is that in real terms the increase in imports has actually been less than exports (~3.5% less). In other words, things we have been importing (i.e. oil) have increased in price more than things we've been exporting.



Source: Census

U.S. Trade Rebounding Back to Imbalance

Marketwatch details:

Global trade rebounded further in March, driving U.S. exports and imports to their highest levels since October 2008, the Commerce Department estimated Wednesday.

The U.S. trade deficit - the difference between exports and imports of goods and services - increased by $1 billion to a seasonally adjusted $40.4 billion, the highest since December 2008 when global trade contracted violently after the September 2008 financial crisis.

In March, imports increased 3.1% to $188.3 billion, while exports climbed 3.2% to $147.9 billion. Shipments of raw materials increased the fastest, but all categories of imported and exports goods showed growth.

Trade flows have not fully recovered from the brutal global recession, however. Real imports remain about 10% below the peak established two years ago. Real exports are 7% beneath the peak of August 2008.

Source: Census

Petroleum's Impact on the Trade Deficit

Reuters details:

Stronger U.S. demand boosted imports 1.7 percent during the month to $182.9 billion. Exports edged only 0.2 percent higher to $143.2 billion, but that was still the best showing since the depths of the global financial crisis in October 2008. Analysts had expected the trade deficit to widen in February to around $38.5 billion. The Commerce Department lowered its estimate of January's gap slightly to $37.0 billion.

U.S. imports of consumer goods such as pharmaceuticals, electronics, toys and clothing and foreign services such as travel were the highest since October 2008. Imports of industrial supplies and materials were the highest since November 2008.

While U.S. imports of crude oil was relatively stagnant in February (the average price of crude trended lower in February, but has since rebounded), continuing my higher price of oil on economic growth thought, the below chart shows the impact of the rising price of oil on the nation's trade balance.

While we have collectively import 2% less petroleum as a percent of total imports from a year back, we pay 6% more as a percent of total imports.

Source: Census

U.S. Trade Back to "Normal"

Marketwatch details the latest release:

After widening dramatically for two months, the U.S. trade deficit reversed course and narrowed unexpectedly in January, government data indicated, suggesting that the economic recovery remains tentative.

The trade deficit shrank a seasonally adjusted 6.6% to $37.29 billion from $39.90 billion in December, the Commerce Department said Thursday.

The one-month improvement in the deficit marked the biggest since last September.
The trade gap had jumped by 9.7% in November and by 10.5% in December -- reports that economists said had a strong-economy feel about them as the appetite for imported goods was robust.

The chart below details the longer term trend for imports and exports. For imports, an increase is a negative (a drag on GDP) whereas an increase in exports is positive (a plus on GDP). It shows that things have "normalized" after a huge reversal in post-crisis.

Source: Census

Global Trade Continues to Bounce Back to the Old Norm

The LA Times details:

The U.S. trade deficit widened by an unexpectedly large margin in December as American exports continued to grow but imports rose at an even faster pace, largely because of a sharp increase in petroleum purchases, the Commerce Department reported Wednesday.

It was the third straight month of rising trade deficits -- and the surprisingly big jump in December, to $40.2 billion from $36.4 billion in November, suggested that U.S. economic growth in the fourth quarter, initially estimated at 5.7%, could be revised down slightly, said Paul Dales, an economist at Capital Economics.

Another reason for a downward GDP revision... shocking. Back to the article...

The continued pick-up in trading activity, including the rise in volatile oil imports, reflects the rebound in the global economy and greater production demand in the United States.

And more broadly, a continued reversal of the absolute collapse witnessed in the Fall of 2008.



Source: Census

Trade Balance Improves in October

Marketwatch reports:

The U.S. trade deficit narrowed sharply in October as exports were powered by the weaker dollar and imports slowed to a crawl.

The nation's trade deficit shrank 7.6% in October to $32.9 billion from $35.7 billion in September, the Commerce Department said. The September trade gap had been reported at $36.5 billion.

The narrowing of the deficit was unexpected. Analysts surveyed by MarketWatch had expected the deficit to widen to $37 billion.

The lower deficit also eases fears that the trade balance would deteriorate sharply after the deficit widened sharply last month.

During this recession there has been a sharp drop in international trade that led to a substantial improvement in the U.S. trade deficit.

Good news in the short run, though the longer trend reversal since the economic recovery (i.e. going back to the "norm" of a strong imbalance of imports) remains.



It will be interesting to see what kind of results we get for November and December, but the October print is positive for Q4 GDP.

Source: Census

Trade Deficit Jumps in September

Bloomberg details:

The trade deficit in the U.S. widened in September by the most in a decade, reflecting rising demand for imported oil and automobiles as the economy rebounded from the worst recession since the 1930s.

The gap grew a larger-than-anticipated 18 percent to $36.5 billion, the highest level since January, from a revised $30.8 billion in August, the Commerce Department said today in Washington. Imports surged by the most in 16 years, swamping a gain in exports.

As detailed above, a large component of that net trade deficit was autos. This isn't a huge surprise. When we took a look at September Auto sales, foreign cars performed much better on a relative basis.

So glass half full... The global economy is rebounding. Glass half empty... We (the global economy) are back to relying too much of an indebted US consumer (see Eurozone GDP).

Source: Census

What if the U.S. is Unable to Power the Global Recovery?

Reuters details:

Japan's exports edged lower for the third consecutive month in September as a rising yen weighs on overseas shipments and as a rebound driven by global stimulus spending and the stocking of inventories starts to wane.

Shipments to China continued to improve, but economists doubt this will continue as the country is trying to prevent its fiscal stimulus from forming asset bubbles in its economy.

Exports to the United States, a vital market for Japanese goods, were also slow to recover, suggesting exports will make less of a contribution to Japan's growth in coming months.

"The yen's rise is hurting corporate revenues. While the global economy is picking up, the boost to exports from strength in China may start to fade," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"What's needed now is for consumption to recover in the United States, which is the major market for high value-added Japanese goods. In that sense, it may take time for exports to stage a full-fledged expansion."

As can be seen below, the relative strength of China has been a huge driver of the Japanese recover, but Japanese exports to the U.S. are down 34% year over year (which coincidentally matches Japanese exports to the "world ex-China / ex-U.S.", also down 34% year over year).



So when (or maybe more accurately stated will) the U.S. be able to provide the global economy with much needed private demand?

With a stretched out consumer that is busy rebuilding their personal balance sheet (or unemployed, thus busy just making ends meat), I personally doubt it. Even if they wanted and/or were willing to, is the U.S. consumer even able to with a shrinking supply of credit available to them and diminished personal assets to lever even if they do have access to a loan.

Source: Customs.Go.JP

Trade Balance Breakdown

Bloomberg details:

The U.S. trade deficit unexpectedly narrowed in August as exports climbed to the highest level of the year and oil imports plunged.

The gap fell 3.6 percent to $30.7 billion from a revised $31.9 billion in July, the Commerce Department said today in Washington. A rebound in auto making contributed to a jump in exports to Canada, while a drop in the number of barrels of petroleum bought abroad swamped an increase in fuel prices.

The chart below shows that "jump" in exports (i.e. no jump) during August.



More broadly, the following chart shows the improved trade budget deficit over the longer term. It looks like a case of the old "addition by the elimination of subtraction" (a greater subtraction of imports rather than improvement in exports).



Source: Census

Trade Plunge

If you thought we could rely on continued improvement in the trade balance for the economic rebound in the U.S., think again. The WSJ reports:

The U.S. trade deficit registered its biggest increase in over 10 years in July, as surging purchases of oil caused an unprecedented jump in imports.

The U.S. deficit in international trade of goods and services widened by 16.3%, its largest percentage increase since February 1999, to $31.96 billion, the Commerce Department said Thursday. That's up from $27.49 billion in June, which was revised from an initial estimate of $27.01 billion.

The July deficit was much higher than Wall Street expectations for a $27.5 billion shortfall.

Source: Census