If you recall, last month the monthly trade data surprised on the upside: exports shot up and the trade deficit went down more than market expectations. Sometimes with monthly economic series, these sudden changes reverse themselves in the next month (giveth and taketh away). Not the case this time, folks: exports and imports edged up a bit and the deficit was nearly unchanged. What this implies is that real export growth (adjusted for price changes) in the fourth quarter will likely increase at or near a double digit clip (at annualized rates, which is what GDP uses) while real imports, wait for it, may actually fall.
The other bit of economic news today was initial unemployment insurance claims, a volatile weekly series. Overall, this series has been trending down for the last several months, and I’m betting we’ll see some good gains in the nonfarm payroll numbers in the next couple of months.
Tomorrow, December retail sales and industrial production come out. Retail sales will warrant particular interest and we’ll talk about how these numbers compare to the wide variety of estimates of holiday sales reported in the media.
Two sections follow in the remainder of this note. The first provides more detail about today’s foreign trade release. The second makes a couple of points about the trade deficit in 2010 and the very large role petroleum plays in the deficit (I still believe, perhaps naively so, that if more people realized just how humongous our petroleum-related deficit was, then the nation would place greater emphasis on energy policy. You may call me a dreamer, but hopefully I’m not the only one.)
~Mark Doms, Chief Economist, U.S. Department of Commerce
January 14, 2011
This Week’s Trade Report
Thursday’s trade report shows that the trade deficit changed little in November and confirms the widely held expectations that net trade contributed significantly to overall growth in the fourth quarter. Further, the deficit has dropped significantly from its midyear level, reflecting both an increase in exports and a decline in imports.
The U.S. trade deficit in goods and services was $38.3 billion in November, little changed from its October level and below private-sector expectations of a $40.5 billion deficit.
The deficit has dropped from its recent peak of $50.1 billion in June (Figure 1), reflecting a large drop in the deficit of nonpetroleum goods. The deficit in petroleum goods also declined during this period, while the surplus in services rose to a record level.
Exports grew 0.8 percent in November (Figure 2) and have increased 6.4 percent from their June level, with the gains widespread across the major components including exports of foods, feeds, industrial supplies, capital goods, and consumer goods. Automotive exports, however, declined from their November level.
Imports rose 0.6 percent in November but remained 1.1 percent below their June level (Figure 2 again). Since June, our imports of automotive and consumer goods have declined while our imports of capital goods have increased.
Today’s figures are consistent with private-sector expectations that net trade contributed positively to real GDP growth in the fourth quarter. Net trade subtracted significantly from overall growth in the second and third quarters.
The Trade Deficit So Far in 2010
The trade deficit widened substantially during the first half of 2010 and then narrowed significantly over the next five months. During these eleven months of 2010, the deficit totaled $505 billion at an annual rate. These data are shown as balances in Figures 3 and 4.
The overall deficit has widened by $132 billion, or 36 percent, from its level during the first eleven months of 2009. The deficit in nonpetroleum goods accounted for $84 billion of the total deterioration, the petroleum deficit another $65 billion. The surplus in services improved during the past year.
The deficits shown in Figures 3 and 4 are in dollars and, thus, can change for two reasons: price changes and quantity changes. Over time, the U.S. has run a relatively stable surplus in services trade.1 In contrast, the U.S. has seen persistent and volatile deficits in goods trade. The swings in the petroleum deficit have been a price story while the swings in the nonpetroleum deficit have been a quantity story.
The petroleum deficit during 2010 accounted for about half our total trade deficit.
1 Trade in services refers to the exports and imports of private and government services. Private services include travel, passenger fares, freight and port services, business, professional and technical services, financial services, educational services, etc. Government services include transfers under U.S. military agency sales and direct military expenditures plus miscellaneous services.
