from Follow the Money

Good News. Trade deficit falls to $55 billion

May 11, 2005

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What happened?

Quick answer:

Look at seasonally adjusted non-petroleum imports (All data comes from here).

Jan 2005: 142.4 b

Feb 2005: 143.4 bMarch 2005: 138.3 b

Jan 2004: 122.2 b

Feb 2004: 124.6 bMarch 2004: 128.2 b

y/y growth rate

Jan: 16.5%

Feb: 15.1%March: 7.8%

With say 14% growth, March non-petroleum imports would have been $146 billion -- $7.7 billion more ...

It is hard to compare seasonally adjusted data to non-seasonally adjusted data, and the country by country data is not seasonally adjusted. But it is worth noting that imports from China -- $16.2b in March -- were up only 17% y/y. A lot. But also a lot less than the 30% plus y/y growth rates that have been typical. I was certainly expecting a higher number. With 35% y/y growth (a number consistent with China’s export data), US imports from China would have been $18.6b in March (a $2.4 b difference).

The story here is not exports or even petroleum, but non-oil imports. On a y/y basis, export growth continues to slow -- despite the month over month increase. The monthly increase in March exports is partially due to the usual suspect: aircraft exports were $2.9 b in March v $1.7 b in February.

The non-oil import growth rate has an enormous impact on the deficit.

Forecast out 8% y/y non-oil import growth, oil at $50b and 10% y/y export growth (arguably a bit optimistic; y/y export growth in march was around 7%), and the 2005 trade deficit is around $660 b. The current account deficit would roughly be $760b.

Forecast out 15% growth (the February number), and the trade deficit is $770b.

For now, I’ll stick with the q1/q1 non-oil import growth number of 13% -- that, along with oil at $50 and 10% export growth gives me a forecast 2005 trade deficit of $750 billion, and current account deficit of $850 b.

I want more than one month’s data to conclude that the pace of US non-oil import growth has slowed. But it is at least possible that it has.

UPDATE: Be sure to check out Kash’s analysis at Angry Bear. Note that March US imports from China -- up 17% over March 2004 -- are well below the quarterly average (30%). January-February US imports from China were up 37% y/y.

UPDATE TWO: I am going to start paying a bit more attention to these statistics -- data from the Port of Los Angeles and the Port of Long Beach. Note that even in a good month, 60% of the outbound containers leaving the Port of Los Angeles are empty.

And, does anyone know if the Chinese New Year was in February in 2002?

Petroleum imports were about $2 billion less than I expected, on either a NSA or seasonally adjusted basis. Why? Two reasons:

First, import volumes are not growing quite as fast as I expected. Using the volume data from exhibit 18, growth in import volumes (q1 over q1) was about 1.8% (v. 5.6% in 04 and 7.3% in 03). Evidence that higher gas prices are having an impact? I hope so.

Second, the ratio between US import prices and WTI (the benchmark price for crudde oil) has been around 76% in the first quarter, v say 85% in q4. That makes a big difference. US petroleum importers either locked in lower than current market prices in 2004, or they have some decent long-term contracts.

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