Written by Steven Hansen
A quick recap to the September 2012 trade data released today:
- Import growth has positive implications historically to the economy – and the seasonally adjusted imports were reported up month-over-month. Econintersect analysis shows contraction of 0.6% month-over-month (unadjusted) – however year-over-year growth declined 2.0% with most of the year-over-year decline caused by lower petroleum imports.
- Exports were reported up, but Econintersect analysis shows exports down 0.6% month-over-month – however year-over-year growth at 1.0%.. The tailwind was industrial supplies.
- The market expected a trade deficit between $45.4 and $46.5 billion and the seasonally adjusted headline deficit from US Census came in at a $41.5 billion deficit.
- I will not say that the trade data is recessionary (although it is possible to argue this point) – but it definitely points to a slowing USA and global economy.
In perspective, the current values of exports are at record levels for Septembers – however, this month was a squeaker (and if one used chained dollars, it was not a record month). Imports are another story:
- Imports contracted 2.0% year-over-year (contracted an inflation adjusted 1.5% as import prices are deflating).
- crude oil imports falling almost $3.9 billion year-over-year, and contract $1.5 billion month-over-month (unadjusted).
The data is not inflation adjusted. Here is a view of inflation adjusted imports and exports.
Inflation Adjusted Year-over-Year Change Exports (blue line), Imports less Oil (black line), and Imports with Oil (red line)
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 September exports of $187.0 billion and imports of $228.5 billion resulted in a goods and services deficit of $41.5 billion, down from $43.8 billion in August, revised. September exports were $5.6 billion more than August exports of $181.4 billion. September imports were $3.4 billion more than August imports of $225.2 billion.
In September, the goods deficit decreased $1.4 billion from August to $57.5 billion, and the services surplus increased $0.8 billion from August to $15.9 billion. Exports of goods increased $5.4 billion to $134.0 billion, and imports of goods increased $3.9 billion to $191.5 billion. Exports of services increased $0.3 billion to $53.0 billion, and imports of services decreased $0.6 billion to $37.1 billion.
The goods and services deficit decreased $2.9 billion from September 2011 to September 2012. Exports were up $6.4 billion, or 3.5 percent, and imports were up $3.4 billion, or 1.5 percent.
Econintersect analysis is based on the unadjusted data.
Unadjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line)
Indexing the data to the end of the recession, here is a look at the relative growth of imports and exports using current dollars as the basis for the index.
Unadjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line) indexed to the End of Recession
Econintersect is most concerned with imports as there is a clear recession link to import contraction. Adjusting for cost inflation allows apples-to-apples comparisons in equal value dollars between periods.
Inflation Adjusted Year-over-Year Change Imports (blue line) and Exports (red line)
As shown in the above graph:
- import growth was trending up since mid-2011 – but with this month’s data seems to be arguably flat for over a year.
- Exports have been in a downtrend since mid-2010.
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.]
Above graph with current data:
Imports of Goods and Services