from Follow the Money

Not quite as bad as I expected (the April trade numbers)

June 9, 2006

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A $63.4b trade deficit isn't small.    But it is a bit smaller than the average $65b deficit of the fourth quarter.  And, in all honesty, I expected a bit higher number.

The dog that didn't bark: oil

Oil imports (seasonally adjusted) rose to $23.85b in April, but I certainly expected a bit higher number.  The average US oil import price was $56.8 a barrel.  The import price is typically lower than the spot price.  But it was well below the $70 average market price in April -- I don't think the US oil import bill has peaked.

As importantly, oil import volumes in April were quite weak.  That shows up if you look the exhibit showing real oil imports, which were $10.9b in April v $12.5b in January.   It also shows up in Exhibit 17, which shows the volume of all imported petroleum products.   The US imported 5% less this April than it did last April,   And overall imports so far this year, in volume terms, are down 3.3%.

My gut says that this is evidence that higher prices are having an impact.  But there also may be some industry specific factors at work -- no storage, a mild winter and so on.

The story on non-oil imports isn't as good.  Non-oil goods imports have been around $127-128b all year -- with the exception of February.   And non-oil goods exports have also been stalled around $80b.     In July of 2005, non-oil imports were around $117b, and non-oil goods exports were around $73.5.   So both are have grown -- and in both cases, the growth came in the tail half of 2005.

I don't yet have a good story explaining why both non-oil exports and imports stalled, other than the growth in both was quite strong at end of last year.   I would need to spend more time digging and thinking about inventories and the like.

I'll add in more on the bilateral trade data in a bit.


So far this year (January through April), US imports from China are up 17.5% and US imports from the rest of Asia are up 6.3%, so overall imports from Asia are up by 10.9%.  Just a reminder, that is faster than GDP growth, so overall US imports from Asia are still rising relative to GDP.   China is not just taking market share away from others in Asia.  Still, the 17.5% y/y growth in US imports from China is a bit slower than the growth in the past -- at some point, I will want to see how well this matches up with the Chinese export data.

US imports from the eurozone are up 8.5% y/y -- just  a bit less than overall US imports from Asia -- and the eurozone is doing a bit better than europe overall is doing (US imports from europe are only up 7.8%).  US imports from Britain are only up 5.5% ... .    

As for US exports, exports to South America are up 19.8% y/y.  Not bad.   And exports to China are up 35.8% y/y pushing overall US export growth to the Asian-Pacific region to 13.35%.   That isn't fast enough to keep the overall deficit with Pacific Rim from growing though: the US imports more than twice as much as it exports from the Pacific Rim, so exports need to grow twice as fast as imports to keep the deficit constant.  Some of the rise in US exports to the Pacific Rim may reflect the global electronics cycle.   China is buying more US goods of all kinds, as it should.  But some US export growth may reflect the shift in electronics assembly from other Asian economies to China as well.   The reprocessing trade ...    

Exports to Mexico are up by 14.4% (imports are up 18.9% ... ) and exports to Canada are up 9.6% (imports are up 13.3%). it seems like the United States' petroleum exporting neighbours are spending some of their windfall on US goods.

Finally, exports to Europe are up 10.2% -- a bit less than exports to the Pacific Rim -- and exports to the eurozone are up 7.5%.   The deceleration in US export growth to the eurozone presumably reflects -- in part -- the dollar's rally in 2005.  

For a long time, US exports to Europe were growing faster than US exports to Asia, even though Asia was growing far faster than Europe.   That has now changed.   I'll have to adjust my rhetoric accordingly.  But I stand by my argument that exchange rate moves, not just growth rates, matter.

But overall, the basic story is fairly clear.  Strong global growth and the dollar's fall v. the euro have generated relatively strong US export growth pretty much everywhere -- at least on a y/y basis.  A lot of that growth was in the tail half of 2005, but it still registers in the y/y data (and since the bilateral trade data is not seasonally adjusted, the y/y data provides the cleanest comparison).  

One question: If the US slows in the second half, as many now expect, how much of an impact will that have on US export growth?   I suspect it will have some.  Some US exports are a byproduct of US demand.  Think of US parts shipped to Mexico (or China) for final assembly.   And some global demand is an echo of US demand, as the rest of the world take some of the dollars that it earns selling in the US market and uses them to buy US goods -- not just US debt. 

That to me implies that the slowdown in US growth alone won't necessarily make a big dent in the trade deficit, at least not without offsetting policy actions outside the US to increase domestic demand growth.  Otherwise some of the fall in US import growth will be offset by a fall in US export growth.  

That might particularly be the case if oil prices stay high even as the US slows -- other countries generally haven't been as willing as the US to borrow to keep on importing other goods even as they spend more on oil.   We will see. 


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