Trade Data Shows Economy Improving in December 2011

Data for December 2011 showed the trade balance deficit is again beginning to grow according to the US Census seasonal adjustment methodology.  The market expected a trade deficit between $48.0 and $48.2 billion.

In perspective, the current values of both imports and exports are at record levels – but there is a clear degradation of the inflation adjusted growth rates of exports and imports less oil.  However, imports including oil show rate of growth is increasing.  Overall, the data is indicating the USA and global economies are growing – but at a slower rate.

When imports grow, it is usually a sign of an expanding economy. Growing exports too 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 December exports of $178.8 billion and imports of $227.6 billion resulted in a goods and services deficit of $48.8 billion, up from $47.1 billion in November, revised. December exports were $1.2 billion more than November exports of $177.5 billion. December imports were $3.0 billion more than November imports of $224.6 billion.

In December, the goods deficit increased $1.8 billion from November to $64.3 billion, and the services surplus was virtually unchanged from November at $15.5 billion. Exports of goods increased $0.9 billion to $127.1 billion, and imports of goods increased $2.7 billion to $191.4 billion. Exports of services increased $0.3 billion to $51.7 billion, and imports of services increased $0.3 billion to $36.2 billion.

The goods and services deficit increased $8.3 billion from December 2010 to December 2011. Exports were up $14.8 billion, or 9.0 percent, and imports were up $23.1 billion, or 11.3 percent.

Overall, exports have been at record levels for the last 16 months, but imports have also been at record levels for 10 of the last 13 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 (less oil) have been slowing since mid-2010. The outlook, however, is that the rate of growth will be improving in the future as the data is being compared against softer economic periods.

Overall the data was not recessionary – and showed continuing domestic and global demand growing in December.  Note:  This is a rear view look at the economy.

Caveats on Using this Trade Data Index

From a 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.

However, in December 2011, both imports and export container shipments grew at the Ports of LA and Long Beach.  This breaks a six month contraction of container imports, and last month’s unusual contraction of exports. 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 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, 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]

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