Second Look at July 2011 Trade Data Raises Warning Signs

Econintersect evaluates coincident economic data to validate or raise flags against our forward indicators (economic forecasts here).  No single economic release can be considered a complete or sole indicator of the dynamics of the economy.

The economy is billions of data sets, some increasing, some decreasing – all at the same time.  Our goal is to analyze and forecast the economy at the Main Street level – and this analysis will likely contain conflicting data.

Imports are a particularly good tool to view the Main Street economy.  Imports overreact to economic changes much like a double ETF making movements easy to see.

Contracting imports historically is a recession marker, as consumers and business start to hunker down.  Main Street and Wall Street are not necessarily in phase.   During some recessions, the consumers and business hunkered down before the Wall Street recession hit – and in the 2007 recession, the contraction began 10 months into the recession.

This past week, when reviewing the trade data for July 2011, it became obvious, because of anomalies in the data for that month, that there was a methodology issue.

Oil prices, and also quantities of imported oil, wobble excessively year-over-year and month-over-month. The data in July wobbled.  In 2010, the percent of oil imports varied between 10.4% and 14.6% of the total.  In 2008 the variance was between 11.5% to over 20%.   No amount of adjusting – short of removing oil imports from the analysis allows a clear picture of imports.

Also, the economy happens to be in a high cost inflation period relative to imports (14% in July 2011).

Removing oil from imports gives us a more precise view of the Main Street economy.  Adjusting the unadjusted data for cost inflation allows apples-to-apples comparisons in equal value dollars between periods.

This view of the data for exports is unchanged from the original analysis:

Growing exports too would be a sign of an expanding global economy (or at least a sign of growing competitiveness).  Here, exports grew $5.7 billion with the drag coming from commodities.  Most categories of manufactured items grew.  This seems to be a positive sign………   But there is a clear deterioration in the trend for exports.

However, inflation adjusted imports have been negative now for two months.  Business and consumers may be hunkering down.  This event has happened before without a recession, however this is a potential recession warning signal which we will now monitor.

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