from Follow the Money

The August trade data: the adjustment continues

October 11, 2007

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The US trade deficit continues to fall, with the pace of the fall slowed by the drag from higher oil prices.

Exports edged up, continuing the recent trend.

Non-oil (goods) imports fell a bit from July, but at $137b, the total is still above there levels earlier this year.   Non-oil goods imports averaged around $134b in q2.

The price of imported oil rose to a new high, topping last August.   Imported volumes though were lower than last August, so $68 a barrel oil didn't translate into a new record for the US oil import bill.  That was higher last August.   The same was true of the July data.  Prices were higher than last July, but volumes were lower.

More later.  Or maybe not.  I don't have much to add to what Calculated Risk has said.   Check out his graph in particular.  As Calculated Risk notes, the "surprise" is the combination of weak non-oil imports (evidence of a slowdown in the US) and a high oil import bill (evidence of either strong global demand or supply constraints).   The gap between the y/y growth in exports (11-12%) and the y/y growth in non-oil goods imports (4% I think, but I need to check my calculations) is large enough to generate a real fall in the trade deficits over time.   That fall would be more apparent but for high oil prices and the large US "oil" deficit.  However, a fall in oil likely implies a fall in global demand -- and thus a fall in US exports.  The reality is that "Decoupling" helps the non-oil balance far more than it helps the overall balance now that the US imports an awful lot of oil relative to its domestic consumption.

Update 2: Higher oil prices haven't put much of a dent in China's trade surplus.   China recorded a $24b surplus in September.  Export growth may be slowing just a bit from its torrid pace late last year, but it still tops import growth by a substantial margin.  There isn't yet evidence of much adjustment in China.  Nor should there be - a lot of the same factors that have pulled the US non-oil deficit down have also pushed China's surplus up.   A weak dollar still means a weak RMB.

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