Trade data for October 2011 is continuing to show a contracting trade balance deficit with both exports and imports declining according to the US Census seasonal adjustment methodology.
In perspective, the current values of both imports and exports are at record levels – and when the US Census discusses decline, it simply means October was not as good as September (but both were good).
When imports grow, it is a sign of an expanding economy. Growing exports too would be a sign of an expanding global economy (or at least a sign of growing competitiveness).
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total October exports of $179.2 billion and imports of $222.6 billion resulted in a goods and services deficit of $43.5 billion, down from $44.2 billion in September, revised. October exports were $1.5 billion less than September exports of $180.6 billion. October imports were $2.2 billion less than September imports of $224.8 billion.
Overall, exports have been at record levels for the last 14 months, but imports have also been at record levels for 8 of the last 11 months. The graph below uses unadjusted data.
Econintersect is most concerned with imports as there is a clear recession link to import contraction. Removing oil from imports gives us a more precise view of the Main Street economy. Adjusting for cost inflation allows apples-to-apples comparisons in equal value dollars between periods.
As shown in the above graph, inflation adjusted exports and imports have had a steady growth year-over-year for the last four months.
Between March 2011 and September 2011, the quantities of oil imported declined year-over-year. However, in October 2011, 263 million barrels were imported versus 252 million barrels in October 2010. However, the value of oil imported declined as the price declined more than the quantity increased.
Overall the data was not recessionary – and showed continuing domestic and global demand in October. This is a rear view look at the economy, but the trend lines are not showing a decline in trade.
Caveats on Using this Trade Data Index
From the recent post on sea containers:
In October 2011 – import containers have contracted year-over-year in the Ports of Los Angeles and Long Beach. This is the fifth month in a row of contraction:
- June 2011 = -4.4% year-over-year
- July 2011 -= -2.1% year-over-year
- August 2011 = -9.4% year-over-year
- September 2011 = -3.9% year-over-year
- October 2011 = -6.6% year-over-year
Econintersect has evaluated the discrepancy between container counts and trade data – and concluded:
Container counts are possibly a recessionary warning signal. However, these are extraordinary times with historical data confused by a massive depression and significant monetary and fiscal intervention by government. Further containers are a relatively new technology and had a 14 year continuous growth streak from 1993 to 2006. There is not enough history to make any solid determination of what the contraction of container imports is saying.
The data is not inflation adjusted. Econintersect applies the BLS export – import price indices to the data to adjust for inflation – total exports, total imports, and imports less oil. Adjusting for cost inflation allows apples-to-apples comparisons in equal value dollars between periods.
Although Econintersect generally disagrees with the seasonal adjustment methodology of US Census, in general this methodology works for this trade data series as the data is not as noisy as the other series. Another positive aspect of this series is that backward revision have normally been very minor.
Econintersect determines the month-over-month change by subtracting the current month’s year-over-year change from the previous month’s year-over-year change. This is the best of the bad options available to determine month-over-month trends – as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).
Oil prices, and also quantities of imported oil, wobble excessively year-over-year and month-over-month. 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.
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 and imports can reflect the direction for Main Street when Wall Street may be saying something different. 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.