Written by Steven Hansen
Our analysis is a little worse than the headlines. A quick recap to the May 2013 trade data released today:
- Import goods growth has positive implications historically to the economy – and the seasonally adjusted goods and services imports were reported up month-over-month. Econintersect analysis shows unadjusted goods (not including services) expansion of 1.1% year-over-year (unadjusted data with inflation adjustment).
- Exports of goods and services were reported down, and Econintersect analysis shows unadjusted goods exports (not including services but inflation adjusted) down 0.7% year-over-year .
- When an inflation adjustment is made to the goods unadjusted data – it becomes better as both import and export prices are deflating.
- Capital goods grew in both imports and exports, while consumer goods grew in imports .
- The market expected a trade deficit of $40.8 to $42.0 billion and the seasonally adjusted headline deficit from US Census came in at a deficit of $45.0 billion.
- The bottom line is that imports and exports goods (not including services) rolling averages (inflation adjusted) do not have a growth trend (flat growth, no acceleration).
- It should be noted that oil imports were up 7 million barrels from last month, and down 30 million barrels from one year ago.
The headline data is seasonally but not inflation adjusted. Econintersect analysis is based on the unadjusted data, removes services (as little historical information exists to correlate the data to economic activity), and inflation adjusts. Further, there is some question whether this services portion of export/import data is valid in real time because of data gathering concerns. Backing out services from import and exports shows graphically as follows:
Inflation Adjusted Year-over-Year Change Goods Export (blue line), Goods Import less Oil (red line), and Goods Import with Oil (yellow 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 May exports of $187.1 billion and imports of $232.1 billion resulted in a goods and services deficit of $45.0 billion, up from $40.1 billion in April, revised. May exports were $0.5 billion less than April exports of $187.6 billion. May imports were $4.4 billion more than April imports of $227.7 billion.
In May, the goods deficit increased $5.0 billion from April to $63.4 billion, and the services surplus increased $0.2 billion from April to $18.4 billion. Exports of goods decreased $0.9 billion to $130.3 billion, and imports of goods increased $4.2 billion to $193.7 billion. Exports of services increased $0.4 billion to $56.8 billion, and imports of services increased $0.2 billion to $38.4 billion.
The goods and services deficit decreased $1.2 billion from May 2012 to May 2013. Exports were up $2.8 billion, or 1.5 percent, and imports were up $1.6 billion, or 0.7 percent.
Seasonally Adjusted 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.
Seasonally Adjusted 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. The graph below uses seasonally adjusted data is in direct contradiction to the unadjusted data year-over-year data which shows contraction.
Seasonally and 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 the data now seems to be showing a downward trend line.
- Exports have been in a downtrend since mid-2010.
Note: This is a rear view look at the economy – however, imports do have a forward vision of up to three months ahead of expected economic activity.
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
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