November 2011 Trade Balance Deficit Grows, But Underlying Data Good

Data for November 2011 showed the trade balance deficit is again beginning to grow according to the US Census seasonal adjustment methodology.

In perspective, the current values of both imports and exports are at record levels – and a slight improvement in the growth rates of inflation adjusted imports and exports is evident.  This is usually (but not always) a sign of an improving economy.

When imports grow, it is usually 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 November exports of $177.8 billion and imports of $225.6 billion resulted in a goods and services deficit of $47.8 billion, up from $43.3 billion in October, revised. November exports were $1.5 billion less than October exports of $179.4 billion. November imports were $2.9 billion more than October imports of $222.6 billion.

In November, the goods deficit increased $4.6 billion from October to $63.2 billion, and the services surplus increased $0.1 billion from October to $15.4 billion. Exports of goods decreased $1.5 billion to $126.6 billion, and imports of goods increased $3.1 billion to $189.7 billion. Exports of services were virtually unchanged at $51.3 billion, and imports of services decreased $0.2 billion to $35.9 billion.

The goods and services deficit increased $8.9 billion from November 2010 to November 2011. Exports were up $16.6 billion, or 10.3 percent, and imports were up $25.5 billion, or 12.7 percent.

Overall, exports have been at record levels for the last 15 months, but imports have also been at record levels for 9 of the last 12 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, growth of inflation adjusted exports and imports may be showing signs of improving from the low levels of mid-2011.  However, if there is improvement in growth rates it is slight and has not been in place long enough to establish a reliable trend.

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.
  • in November 2011, 266 million barrels were imported versus 258 million barrels in November 2010.

Overall the data was not recessionary – and showed continuing domestic and global demand in November. 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 November 2011, import containers have contracted year-over-year in the Ports of Los Angeles and Long Beach. This is the sixth month in a row of contraction.Exports (which are an indicator of competitiveness and global economic growth) contracted for the first time since August 2010, and is the second month in a row of significantly “less good” data.  This may be the first evidence of a global economic downturn – however, one month of negative data (or two months of “less good” data) is not a trend.

Both Imports and Exports contracting year-over-year at the same time sends a shiver down my spine.

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. [graph below updated through 3Q2011]

Related Articles:

All Articles on Trade Data

All Articles on Container Counts

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