A recently released Organization for Cooperation and Economic Development (OECD) forecast [1] suggests that the Euro area economies have already fallen into recession. This is likely to affect U.S. goods exports. Has this expected effect shown up in the data yet? Currently, it is difficult to tell when this effect may be occurring because the country export data are not adjusted for seasonal changes. Therefore, the Economics and Statistics Administration performs our own seasonal adjustment with these data, and finds that the expected export slowdown may have begun in October.
U.S. goods exports have enjoyed strong growth since the end of the recession (21 percent from 2009 to 2010, and 17 percent from 2010 to 2011). Indeed, U.S. exports to Europe have been growing strongly this year, growing at double-digit rates since the end of the recession, and have grown appreciably faster so far this year. Through the first ten months of 2011, our exports to Europe accounted for 22 percent of our total goods exports and 23 percent of our growth in goods exports. However, exports to Europe still have not regained their pre-recession high. Given the manifold headwinds facing Europe, the recent vigor in our exports to Europe may not persist.
How strong are those headwinds? Well, according to the OECD, the Euro Area is already facing what is expected to be a brief recession (see chart below). Many private-sector analysts are also concerned about the possibility of a European recession during 2011Q4 and 2012 as austerity measures to deal with the sovereign debt crisis have expanded. A key determinant of how fast our exports to a foreign country rise is the health of that country’s economy as measured by its GDP growth, as we talked about in a previous blog [2].
The next chart shows reported exports to Europe as the dashed blue line. Historically, these exports tend to be low in winter and summer and high during the spring. We adjust for these typical seasonal movements to see if a turning point is occurring. (The monthly Census Bureau report on international trade includes exports by country that are not seasonally adjusted.) Seasonally adjusted U.S. exports to Europe turned down in October.
In addition to potentially affecting U.S. exports directly, difficulties in Europe could also affect other regions of the world, such as the Pacific Rim countries, since Europe is a significant destination for their exports. Then, U.S. exports to those regions would be slowed as well. The chart above shows that seasonally adjusted U.S. exports of goods to Pacific Rim countries, which include China, turned down in October. The potential decline in exports to Europe and the Pacific Rim is why the Administration’s efforts to promote our exports are especially needed at this time.
Note on seasonal adjustment: The Census Bureau does not perform seasonal adjustment on exports and imports for the more than 200 countries with which the U.S. trades. However, ESA thought it might be useful to seasonally adjust our exports of goods to four regions (Europe, Pacific Rim, South/Central America, and NAFTA). With the effects of recurring annual influences removed, it is often easier to discern underlying movements. So, ESA took a crack at this using the Census Bureau's X12-ARIMA [3] program. It's an almost magical program that keeps getting better over time but it can be daunting to learn. Our preliminary results are unofficial of course and not of the same quality as seasonal adjustment done by the experts at Census. We started out with fairly standard settings and in some cases used a shorter model span and/or lower critical value for outlier detection to get acceptable results. As time goes by, we may make additional changes.
~Mark Doms, Chief Economist, U.S. Department of Commerce
December 9, 2011
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