Econintersect disagrees with the assessment of the US Census / BEA that the trade balance deficit shrunk in November 2011. The source of the diagreement is the methodology used to seasonally adjust the data. Distortions from the unusual nature of the recovery, and The Great Recession itself, make use of the normally useful seasonal adjustments problematic.
First the headlines from the November 2010 release of the U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES:
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 $159.6 billion and imports of $198.0 billion resulted in a goods and services deficit of $38.3 billion, down from $38.4 billion in October, revised. November exports were $1.2 billion more than October exports of $158.4 billion. November imports were $1.1 billion more than October imports of $196.8 billion.
In November, the goods deficit increased $0.1 billion from October to $51.2 billion, and the services surplus increased $0.2 billion to $12.9 billion. Exports of goods increased $1.3 billion to $113.5 billion, and imports of goods increased $1.4 billion to $164.7 billion. Exports of services decreased $0.1 billion to $46.2 billion, and imports of services decreased $0.3 billion to $33.3 billion.
The goods and services deficit increased $3.0 billion from November 2009 to November 2010. Exports were up $20.7 billion, or 14.9 percent, and imports were up $23.7 billion, or
Econintersect evaluates the data based on unadjusted data. The November trade data confirms the combined effect of retail sales being up (analysis here), wholesale sales at all time peak (analysis here), and Industrial Production (analysis here) being flat. Since goods were not being manufactured – the goods gap should be imports. Let’s keep this as a hypothesis as we look further.
Exports were very strong – even after the October 2010 historical high exports (analysis here). This was the second highest level of exports in 2010. What is beyond debate is the amount of exports far exceeding the preceding Novembers back to when this data series began in 1992.
According to US Census:
The October to November increase in exports of goods reflected increases in consumer goods ($1.0 billion); foods, feeds, and beverages ($0.6 billion); industrial supplies and materials ($0.3 billion); and capital goods ($0.2 billion). Decreases occurred in other goods ($0.6 billion) and automotive vehicles, parts, and engines ($0.6 billion).
But the big increase came this month for imports. Historically November is not as large as October – yet in November 2010 it is as large. It is very obvious imports are up in November 2010, on a relative basis, and now approaching previous highs. According to US Census:
The October to November increase in imports of goods reflected increases in industrial supplies and materials ($1.9 billion); capital goods ($1.0 billion); and foods, feeds, and beverages ($0.2 billion). Decreases occurred in consumer goods ($0.9 billion); automotive vehicles, parts, and engines ($0.4 billion); and other goods ($0.2 billion).
This data does NOT support the concept that the difference between manufacturing and retail sales is imports. Our hypothesis is not supported. Sometimes data does not make sense in the short term, and the answer will surface later.
With both imports up and exports up, the question remains about the trade gap.
Going forward with rising costs for energy, we should look for a “less good” trade gap in the near term. Long term, there are so many dynamics in play that the crystal ball is too fogged to provide an answer.