from Follow the Money

US November trade data

January 12, 2006

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$64.2 billion is not $68.1 billion.   But it is still kind of large.   Another $65 billion deficit in December, and the annual trade deficit will reach $726 billion.  

That works out to a fourth quarter trade deficit of $197.5 billion, and, by my estimates, a quarterly current account deficit of $229.5 billion (I estimate transfers at -22, and income at -10).   Sum that up, and the current account deficit for 2005 will come in around $821 billion.

A $65 billion trade deficit over all of 2006 would generate a trade deficit of $780 billion, and, by my estimates, a current account deficit of $940 billion.    That is - in my estimation - what happens even if exports grow fast enough to keep the average quarterly 2006 trade deficit in 2006 at a level slightly below its likely level in the fourth quarter of 2005.

Looking at the details, the monthly deficit improved because oil prices fell, and because the US imported more crude and less product.   Some gulf coast refineries must have come back on line.   The seasonally adjusted fall in petroleum imports was $0.8 billion, but the not seasonally adjusted data shows a broader fall of $1.5 billion in the sum of petroleum (product), crude and gas imports.    The balance on civilian aircraft also swung by $1 billion - more planes left Seattle for the world, and fewer planes left Toulouse for the states.  Imports from China (not seasonally adjusted) were down $2 billion m/m, but that just reflect the seasonal patterns.  Inventory is build up in October for the holidays.

To see the future, look at Exhibit 8 (non-petroleum goods imports).  Non petroleum goods imports of $121.3 billion are a bit lower than the $122.7 billion of October, but there still definitely seems to be a pattern of growth over the $117 billion or so typical of the first part of this year.   I expect that to continue.  November non-petroleum imports of goods were 8.3% higher than a year ago, and November non-petroleum imports of goods and services were up 7.5%.    I don't see any obvious reason why that growth won't continue in 2006.

Conversely, I am not convinced that November non-oil export growth of 10.8% can be sustained.  The lagged impact of a stronger dollar and all.   Plus, there doesn't seem to be any consistent pattern of growth in the monthly data for the second half of the year.  Some, sure.  But it's weak.   The three-month moving average of exports has been in the $107 billion range since August.  Maybe that's Katrina.    Corn exports are down about $1.1 billion ytd.    We will know in time.

I mention the risk that export growth may slow in part because 10.8% export growth (goods and services) is enough to keep the non-oil trade balance from widening if non-oil import growth (goods and services) stays at 7.5%.    To me, though, it looks as if the growth in exports came earlier in 2005 (reflected the lagged impact of dollar depreciation), while the growth in non-oil imports is coming from the second half of 2005.  So I would expect some slowdown in export growth and perhaps a small pickup in non-oil import growth.   Look at the data in this Wachovia report.

One last point: China.    The US is on track to record a bilateral deficit of roughly $204 billion with China, by my latest calculations.     But if you sum up the imports over the last two months, they are up only 18.8% -- less than the 24.4% growth is you compare all of 2005 with all of 2004.  If you sum up exports over the last two months, they are up 32% y/y -- more than the 19.4% growth that you get from comparing the first eleven months of 2005 to the first eleven months of 2004. 

China may have wanted to give President Bush some good news for his November trip.  But I also do think that Chinese export growth to the US is slowing slightly.  And there is certainly room for China to continue to import $4 billion a month - if not more - in US goods.  But before anyone gets too excited about rapid growth of US exports to China, we should remember two things:

  • 30% export growth and 18% import growth would still generate a bilateral deficit of $236 billion in 2006.   It is not enough to make the bilateral deficit shrink.  
  • Some of the recent increase in US exports may be linked to the euro/dollar and yen/dollar moves at the end of 2004.  The US tends to compete with Europe and Japan in export markets, and goods delivered now would have been ordered earlier.   

I am pretty confident non-oil imports are heading up.  Oil will be what it is.   Right now, there is no sign that a big fall in the oil price will help the US out.   Broad petroleum import volumes increased by 1.7% in 2005, even in the face of a big price shock.   Volume growth clearly slowed from previous years, but the US still imported more.   So barring a fall in oil, the US oil import bill will keep growing.  Remember the average price for US imports in 2005 was only $46.5. $50 a barrel oil only showed up in the US import data in the second ½ of 2005.  

And I would expect the stronger dollar to make it harder for US exports to grow faster than they did in 2005. 

All in all, I - unfortunately -- remain confident higher trade deficits lie ahead.

Update: so does Menzie Chinn.  And he has graphs showing why.

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