Trade Data for February 2012 Is Good, Export Spike May be Transitory

Written by Steven Hansen

Trade balance is an important index to Econintersect which uses the data to validate economic projections.  To further our understanding we rebuild the analysis from scratch using unadjusted data.  You might have heard pundits throwing out reasons why this February data was distorted – but our analysis is trend based and inflation adjusted, and the data continues to have positive economic implications for the USA economy.

The market expected a trade deficit $53.0 billion and the seasonally adjusted headline data from US Census came in at $46.0 billion.  The Econintersect trade balance number is $50.5 – and exports contained an unusual $329 million bump in aircraft exports and $285 million bump in industrial machines.

In perspective, the current values of both imports and exports are at record levels – but there is a long term degradation of the inflation adjusted growth rates of exports (notwithstanding the bump this month). However, imports show rate of growth is increasing which usually indicates the USA economy is growing at a faster rate.

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 $181.2 billion and imports of $227.2 billion resulted in a goods and services deficit of $46.0 billion, down from $52.5 billion in January, revised.  February exports were $0.2 billion more than January exports of $180.9 billion.  February imports were $6.3 billion less than January imports of $233.4 billion.

In February, the goods deficit decreased $6.0 billion from January to $61.4 billion, and the services surplus increased $0.5 billion from January to $15.4 billion.  Exports of goods decreased $0.6 billion to $128.0 billion, and imports of goods decreased $6.5 billion to $189.4 billion.  Exports of services increased $0.8 billion to $53.2 billion, and imports of services increased $0.2 billion to $37.8 billion.

The goods and services deficit increased $0.6 billion from February 2011 to February 2012.  Exports were up $15.4 billion, or 9.3 percent, and imports were up $16.1 billion, or 7.6 percent

Econintersect Analysis Based on Unadjusted Data

Overall, exports have been at record levels for the last 18 months, but imports have also been at record levels for 12 of the last 15 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:

  • import growth with oil have been trending up since mid-2011
  • import growth less oil was trending down, but spiked up in January
  • export growth was trending down since mid-2010 spiked this month.  This spike may not be permanent as it was centered on a big upward change in aircraft exports and industrial machines.

Overall the data was not recessionary – and showed continuing domestic and global demand.  Export growth is demonstrating a slowing global economy – and the upward bump this month may not be a trend. 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 reverses 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 U.S. 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 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.]

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