Nasty Trade Data Shows Weakening Economy

Written by Steven Hansen

One does not have to cherry pick the data right now to make a case the economy is sucking swamp water.  On the other hand, there remains no smoking gun showing the economy has slipped into a recession.

Trade data is one of the major data releases used to validate Econintersect‘s Economic Index.  With CNBC providing the background noise in my world, I noticed little discussion occurred about this data.  On the surface, the trade balance deficit grew – and this should be good news as the trade balance deficit normally grows when the USA economy is expanding.  But is it different this time?

From the perspective of the above graph, all looks in order.  Remember, the trade balance is the subtraction of imports from exports.  Trade balance does not tell you if exports or imports are growing.  What would it say about the economy if both exports and imports were in a long term “less good” trend?

The above graph uses seasonally adjusted data and tells you that year-over-year economic growth is almost zilch. And for grins, I have tossed in GDP to show historical correlations.

However, both export and import prices have been deflating.  The graph below uses unadjusted data – and uses the export and import price indices to show inflation adjusted growth.

Inflation Adjusted Year-over-Year Change Exports (blue line), Imports less Oil (black line), and Imports with Oil (red line)

So what is the bottom line?

The trade balance is a major influence of the USA GDP.  This trade balance was 0.23 of the 1.3% 2Q2012 GDP.  But we now have two months of 3Q2012 with marginal data – and a growing trade balance.  This could turn out to be a major GDP headwind.

Unadjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line) indexed to the End of Recession

The trade data normally has almost unnoticeable current dollar backward revision.  If the upcoming September data does not improve – trade will be a significant headwind to GDP.  As Econintersect concentrates on the Main Street economy, import’s marginal growth suggests Joe Sixpack’s world continues marginal consumption improvement.

No data is yet suggesting a reversal to the economy’s current weakening trend.

Other Economic News this Week:

The Econintersect economic forecast for October 2012 showed growth, but there was a serious degradation of the elements in the forecast. Overall, trend lines were broken to the downside. There is a whiff of recession in the hard data (plus certain surveys are actually at recession levels), with container imports contracting for three months in a row.

ECRI is still insisting a recession is here (a 07Sep2012 post on their website). ECRI first stated in September 2011 a recession was coming . The size and depth is unknown. The ECRI WLI growth index value is enjoying its eighth week in positive territory. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

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Initial unemployment claims fell significantly – from 367,000 (reported last week) to 339,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge – the 4 week moving average – also fell significantly from 375,000 (reported last week) to 364,000. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims – 4 Week Average – Seasonally Adjusted – 2010 (blue line), 2011 (red line), 2012 (green line)

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Data released this week which contained economically intuitive components (forward looking) were:

  • Rail movements (where the economic intuitive components continue to be indicating a moderately slightly expanding economy).
  • ISM services Business Activity sub-index, which has a good new normal track record in tracking the economy, grew strongly.

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Weekly Economic Release Scorecard:

September 2012 Producer Price Index Show Moderating Trend Ending
Infographic of the Day: The Cost of Honeymoon
Don’t Let the Market Drive You Bats
Top-10 American Misconceptions about 10 Recent American Presidents
Commodities and ETFs
India: Mangoes in a Banana Republic?
Planet of the Diamonds
Fed’s Balance Sheet: 10 October 2012: Increases $11.8 Billion
Initial Unemployment Claims Return to Trend
Philly Fed’s Plosser Attacks QE3
Rail Week Ending 06 October 2012: Coal’s Headwinds Continue to Degrade Rail Data
Large Scale Asset Purchases (QE): There Is A Lot To Learn
06October2012 Unemployment Claims: Large Weekly Drop
Export and Import Price Deflation Remains in September 2012
August 2012 Trade Data: Both Imports & Exports Weak
Infographic of the Day: How Dangerous are Motorcycles?
France: From The Gauche They Come And Gauche They Are !
This Election Will Affect Your Investments
Faster Than the Speed of Light?
Management of Modern Money
Global Economic Intersection Named to Top Website List
Average Gasoline Price Rises $0.048 Week Ending 08 October 2012
October 2012 Beige Book: Economy Growing Modestly
CEO Departures Low in September 2012
August 2012 JOLTS Saying Future Jobs Growth May Weaken
Wholesale Sales Inventories Soft in August 2012
Some Caveats on 2Q2012 USA Banking Sector Report
Infographic of the Day: Are We Getting Enough Sleep
Less Gold to Come From Quebec?
When Up is Down (or Is It the Other Way Around?)
Ten American Industries with Surprisingly Poor Prospects
Spotlight on Greece
Why the Housing Crash is Far From Over
Fed Reports on USA Banking Sector for 2Q2012
IMF: The Global Recovery Continues, But It Has Weakened
September 2012 Employment Index Predicts Slower Growth
Infographic of the Day: American Spending Habits
Stratfor: The Emerging Doctrine of the United States
September 2012 Small Business: Still at Recessionary Levels
Update: The Best Way to Rob a Bank is to Own One
Top 7 Reasons Why Trust Deed Investing is Safer than Market Investing
How the Mortgage Industry Can Help the US Economy
Professor William K. Black: Government Does Not Prosecute Large Corporations Anymore
Capital Goods and the Firm
What Would It Take to Ignite Inflation?
Light Vehicle Sales up 2.8% Month-over-Month in September 2012
First Ever Crowd Funded IPO – Updated
Consumer Credit Clearly is Expanding in August 2012
Infographic of the Day: Engineering the Internet
Six Stocks to Own if Romney Wins
Debating with China Bulls
Global Growth is Slowing and China is the Wild Card
Japanese Car Manufacturers Cut Chinese Production in Half
Insider Trading 05 October 2012: Insider Buying Declines for Fourth Week
Employment: Seasonal Adjustment Woes
The\ Week Ahead: Autumn, The Season of Fear?
The Magical Economic World Where Money ‘Just Happens’
Rail Movements Present a Mixed Picture in September 2012
Trefis: Highlights Week Ending 05 October 2012
Debate Exposes Obama Biggest Failure
Economy Screwed Up because 8% of Real Workforce Is Idle

Bankruptcies this Week: Vertis Holdings, Privately-held TC Global (dba Tully’s Coffee)