from Follow the Money

The June trade data (a day late)

August 10, 2006

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The take away conclusion from the June data is that not much has changed. 

The headline trade deficit was unchanged (more or less) from the revised May deficit   The US oil import bill was more or less unchanged -- $27b and change in June v. $28b in May.  Oil import prices were more or less unchanged at around $62 a barrel.  Oil import volumes this June were a bit lower than last June, but oil import volumes this May were a bit above oil import volumes last May -- total imported barrels in May and June combined were pretty much unchanged from last May and June.

That though is in some sense bad news.  For the first siz months of the year, import volumes are about 2% lower than last year.  The May/June data though seems to suggest that such a decline is unlikely for the full year.

The good news.  Exports are up.  And it isn't just civil aircraft.    Boeing exported $3.2b in June v $3.5b in May.     Still, for the year, Boeing's exports are up by around 30% -- with aircraft exports going from $15b in the first six months of last year to around $20b in the first six months of the year.  

Non-oil imports also look to be rising.  May's import data must have been revised up.  And June is definately an increase over May -- and a meaningful increase over the January-April period.  That is in some sense to be expected.    Barring a US recession, one would expect some increase in non-oil imports.

I won't try to match Menzie Chinn's graphs, which provide a nice breakdown of the oil and non-oil trade deficit (both in nominal terms and as a share of GDP).

I would note that the nominal trade deficit has been roughly stable for the last three quarters.   It was $195b or so in the fourth quarter, $191b in the first quarter and $193b in the second quarter.   

That is the good news.   The bad news is that the trade deficit in the fourth quarter of 2005 was a lot bigger than the trade deficit in the first three quarters of 2005.   Consequently, the $193b trade deficit in q2 of 2006 is a lot bigger than the $172 trade deficit in q2 of 2005.   

So even if the trade deficit is stabilizing, it is stabilizing at a higher level than in 2005.  Plus, a constant trade deficit likely implies a growing current account deficit.   Rising interest rates and rising debt levels imply rising interest payments.  That didn't show up in the q1 current account data, but just wait (I'll have more on this soon).   The current account deficit, in my judgement has yet to stabilize.

One last point: I am not convinced that current strong US export growth can be sustained through the second half of the year.   A lot of countries are spending a lot more on oil, which means less to spend on other goods.   The pace of growth in civil aircraft exports -- a clear US comparative advantage -- will likely slow.   I don't think Boeing will sell a lot more than $20b in planes abroad in the second half.  at some point, I expect the lagged impact of the dollar's fall to 1.25-1.30 -- something that happened in 2003-04 -- to start to wear off.

Finally, I suspect that the world economy, not just the US economy, will slow.   In part because the US is slowing.  And in part because I doubt Chinese growth will pick up from its already very strong pace.

A slowing US economy likely implies that the pace of growth in non-oil US imports will be somewhat subdued (though likely still positive).   If US export growth continues at its current pace (and oil prices don't rise further) the nominal trade deficit will likely remain roughly stable.  But if export growth slows, the story might be slightly different.

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