March 2012 Trade Data Still Indicating Expanding Economy

Written by Steven Hansen

Import growth has positive implications historically to the economy – and March 2012 trade data (although not as good as February), continued to support projections the economy is expanding moderately.

The market expected a trade deficit between $49.5 and $50.2 billion and the seasonally adjusted headline data from US Census came in at $51.8 billion. The Econintersect trade balance number is $58.5 – and there were no unusual elements in the data.

In perspective, the current values of both imports and exports are at record levels – and both export and import growth rates are at the low end of the channel they have maintained since mid-2011 – which does not indicate any changing economic dynamics.

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 March exports of $186.8 billion and imports of $238.6 billion resulted in a goods and services deficit of $51.8 billion, up from $45.4 billion in February, revised. March exports were $5.3 billion more than February exports of $181.5 billion. March imports were $11.7 billion more than February imports of $226.9 billion.

In March, the goods deficit increased $6.5 billion from February to $67.6 billion, and the services surplus increased $0.1 billion from February to $15.8 billion. Exports of goods increased $4.7 billion to $132.7 billion, and imports of goods increased $11.3 billion to $200.3 billion. Exports of services increased $0.5 billion to $54.1 billion, and imports of services increased $0.4 billion to $38.3 billion.

The goods and services deficit increased $5.8 billion from March 2011 to March 2012. Exports were up $12.8 billion, or 7.3 percent, and imports were up $18.5 billion, or 8.4 percent.

Econintersect Analysis Based on Unadjusted Data

Overall, exports have been at record levels for the last 19 months, but imports have also been at record levels for 13 of the last 16 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 currently has a flat trend since mid-2011
  • last months spike in export growth has now proven to be a one-off event – and the most optimistic assessment is that growth has been flat since mid-2011

Overall the data was not recessionary – and showed continuing domestic and global demand. Export growth is demonstrating a slowing global economy. 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.]

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