Written by Steven Hansen
A quick recap to the June 2012 trade data released today:
- Import growth has positive implications historically to the economy – and the seasonally adjusted imports were reported down month-over-month. Econintersect analysis shows decline of 4.8% month-over-month (unadjusted) – yet the reason is good.
- Exports were reported up, and Econintersect analysis shows exports up 3.0% month-over-month lead by pharmaceuticals, gold, jewelry, petroleum products and auto. The headwind was agricultural products.
- The market expected a trade deficit between $47.5 and $48.0 billion and the seasonally adjusted headline data from US Census came in at a $42.9 billion deficit.
- There were no elements in this trade data which were recessionary.
In perspective, the current values of exports are at record levels for Junes. Imports are another story:
- Imports contracted marginally ($0.2 billion) year-over-year.
- crude oil imports falling almost $5 billion year-over-year, and $3 billion month-over-month (unadjusted).
The data is not inflation adjusted. Here is a view of inflation adjusted imports and exports.
Inflation Adjusted Year-over-Year Change Exports (blue line), Imports less Oil (black line), and Imports with Oil (red line)
Growing exports is a sign of an expanding global economy (or at least a sign of growing competitiveness). From the press release:
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total June exports of $185.0 billion and imports of $227.9 billion resulted in a goods and services deficit of $42.9 billion, down from $48.0 billion in May, revised. June exports were $1.7 billion more than May exports of $183.3 billion. June imports were $3.5 billion less than May imports of $231.4 billion.
In June, the goods deficit decreased $5.4 billion from May to $57.5 billion, and the services surplus decreased $0.3 billion from May to $14.6 billion. Exports of goods increased $1.8 billion to $132.8 billion, and imports of goods decreased $3.6 billion to $190.3 billion. Exports of services decreased $0.2 billion to $52.2 billion, and imports of services increased $0.1 billion to $37.6 billion.
The goods and services deficit decreased $7.4 billion from June 2011 to June 2012. Exports were up $12.3 billion, or 7.1 percent, and imports were up $4.9 billion, or 2.2 percent.
Econintersect analysis is based on the unadjusted data.
Unadjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line)
Indexing the data to the end of the recession, here is a look at the relative growth of imports and exports using current dollars as the basis for the index.
Unadjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line) indexed to the End of Recession
Econintersect is most concerned with imports as there is a clear recession link to import contraction. Adjusting for cost inflation allows apples-to-apples comparisons in equal value dollars between periods.
Inflation Adjusted Year-over-Year Change Imports (blue line) and Exports (red line)
As shown in the above graph:
- import growth have been trending up since mid-2011
- Exports have been in a downtrend since mid-2010.
Note: This is a rear view look at the economy.
Caveats on Using this Trade Data Index
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 U.S. Census, in general this methodology works for this trade data series as the data is not as noisy as other series. Another positive aspect of this series is that backward revision has usually 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, consumers and businesses hunkered down before the Wall Street recession hit – but in the 2007 recession the Main Street contraction began 10 months after the recession officially started. [Graph below is updated through 3Q2011.]
Above graph with current data:
Imports of Goods and Services