Written by Steven Hansen
Our analysis is much worse than the headlines. A quick recap to the February 2013 trade data released today:
- Import growth has positive implications historically to the economy – and the seasonally adjusted imports were reported up month-over-month. Econintersect analysis shows a contraction of 1.8% month-over-month (unadjusted data) – with the year-over-year contraction at 1.1%.
- Exports were reported up, and Econintersect analysis shows exports down 4.2% month-over-month – year-over-year growth at 0.1%.
- When an inflation adjustment is made to the unadjusted data – it goes from bad to terrible.
- The data seems uniformly weak – there is no smoking gun.
- The market expected a trade deficit between $44.7 and $46.0 billion and the seasonally adjusted headline deficit from US Census came in at a $43.0 billion deficit.
- The bottom line is that imports and exports (inflation adjusted) now have a declining rate of growth trend (rate of growth unchanging) – which is now showing an economic contraction.
- It should be noted that oil imports were down 56 million barrels from last month, and down 20.9 million barrels from one year ago.
- This data suggests the economy is contracting.
In perspective, the current values of exports are at record levels for Februarys. However, there is a real year-over-year contraction in imports.
The headline 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 (red line), and Imports with Oil (yellow 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 February exports of $186.0 billion and imports of $228.9 billion resulted in a goods and services deficit of $43.0 billion, down from $44.5 billion in January, revised. February exports were $1.6 billion more than January exports of $184.4 billion. February imports were $0.1 billion more than January imports of $228.9 billion.
In February, the goods deficit decreased $1.5 billion from January to $60.2 billion, and the services surplus was virtually unchanged from January at $17.3 billion. Exports of goods increased $1.3 billion to $132.2 billion, and imports of goods decreased $0.1 billion to $192.4 billion. Exports of services increased $0.2 billion to $53.8 billion, and imports of services increased $0.2 billion to $36.5 billion.
The goods and services deficit decreased $1.6 billion from February 2012 to February 2013. Exports were up $5.8 billion, or 3.2 percent, and imports were up $4.2 billion, or 1.9 percent.
Econintersect analysis is based on the unadjusted data.
Unadjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line) – Not Inflation Adjusted
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 – Not Inflation Adjusted
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. The graph below uses seasonally adjusted data is in direct contradiction to the unadjusted data year-over-year data which shows contraction.
Seasonally and Inflation Adjusted Year-over-Year Change Imports (blue line) and Exports (red line)
As shown in the above graph:
- import growth was trending up since mid-2011 – but the data now seems to be showing a flat trend line (year-over-year rate of growth in a narrow band).
- Exports have been in a downtrend since mid-2010.
Note: This is a rear view look at the economy – however, imports do have a forward vision of up to three months ahead of expected economic activity.
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