REAL TRADE BALANCE
The real trade deficit collapsed in June — plunging from -$45,992 million to -$54,136 billion ( 2005 $). I have not done the calculation, but this will generate a significant downward revision of the second quarter real GDP report. Remember, BEA does not have this data when they do the first GDP report.
The plunge was driven by a 5.2% jump in real nonpetroleum imports although petroleum imports also rose 1.9%. Since the May 2009 bottom, real nonpetroleum imports have risen some 31.9%. Real petroleum imports are up 8.9% over the same period. Real exports fell 1.6% and as the charts makes obvious they have been flat in recent months — they are actually down 1.5% from their March 2010 peak. This should force forecasters to significantly revise their growth forecast down as what looked like a strong rebound in exports late last year now appears to be faltering.
The Real Exports and Imports graph looks encouraging to me. 🙂
The slight leveling off of exports is consistent with noise.
You can’t conclude that exports are faltering.
The strong jump in imports shows that people in the US are starting to spend. That is encouraging. 🙂
It would be better for domestic jobs if they spent more money at home, but remember folks, we are in a global recession/depression. The increase in foreign trade that this graph shows is a good sign. We are all in this together.
Just as a rough approximation of the impact on GDP, the difference between May and June real trade deficits annualizes to 0.7% of GDP.
I’d agree that the trends in real imports and exports suggest a persistent widening in the US trade deficit. The wide range of imbalances that seemed jointly created on the way into the credit crisis have not been resurrected – credit growth is too slow – but this particular imbalance is back. So where’d it come from, when US consumption growth is weak? Substituting imports for domestic production? A consumption shift from domestic to imported goods? Curious.
In the near term, we may see a correction to what happend in June. Much of the rise in imports, about 58%, was in consumer goods, ex-auto. Timing suggests back-to-school shelf stocking. If so, then just the completion of back-to-school selling should mean a narrowing in the gap, and a realization that there is excess inventory (ratios are on the way up) would meam an even bigger narrowing.
Min,
Increased “trade” is rather opaque, absent detail. We have detail. Only one side of trade is increasing recently. US exports are stagnant. That is not “good news”. In addition, we already have a first look at GDP for Q2, which includes June. Real PCE rose at a 1.6% annualized pace. slower than in Q1, and and slower than the overall rise in GDP, which makes an acceleration in imports hard to explain as simply an increase in consumer demand. What we have is an increase in import penetration. I know it is a sort of commonplace to see trade as nothing more than a reflection of gross changes in demand, but the facts in this case don’t support it. The linkages between rising imports and rising consumer demand are missing, and we need to find some other explanation.
kharris: “Increased “trade” is rather opaque, absent detail. We have detail. Only one side of trade is increasing recently. US exports are stagnant.”
That is where we disagree. I do not believe that you can say that US exports are stagnant. The leveling off is consistent with noise, as the graph indicates.
Exports may stagnate, particularly with austerity measures in Europe. But the evidence is not in on that yet, is it?
Min,
You have raised an objection to a point I didn’t make. I didn’t offer European austerity as an explaination, so I don’t need to wait for evidence of that stagnation to make my point.
Post-recession exports peaked in March, and have drifted sideways below that peak since. Unless you have some statistical evidence to support your “noise” claim, it is no more than your claim. Stick with the noise claim if you will, though. The other points I made, which you have not addressed, are more than enough to belie the view that “trade” is rising because consumer demand is up. The data show that US imports are rising because of increased import penetration, not because consumer demand accelerated. Consumer demand decelerated in Q2, but imports accelerated. The data simply do not fit the story you told. It is a “just so” story that proponents of trade like to tell. Sometimes its true. Other times, it isn’t. Right now, the data suggest it is not true.
kharris: “Unless you have some statistical evidence to support your “noise” claim, it is no more than your claim.”
I am not making the claim, I do not have the burden of proof. The claim is that exports are stagnant. A glance at the graph is enough to see that the sideways drift is insufficient evidence, i. e., noise. If it is not just noise, prove it.
It is not an answer, but the details of the export data show the weakness to be widespread.
Foods, industrial materials and consumer goods exports are all down sharply while capital goods and
automotive are still rising. I’m sure if I looked at the detail the automotive exports are largely to Canada and demand there seems OK. But the early strength after the inventory liquidation has to slow. On a y/y basis real auto exports are up 66% — clearly an unsustainable trend. Food exports peaked in November and consumer goods exports peaked in October so the weakness in these two categories has been around for about six months.
So we are left with the capital equipment category, where the US traditionally has strong exports. But the year over year gain in capital goods exports of some 20%, now roughly matches the peak growth rates seen in the last two cycles.
Nice piece. Sums it up perfectly. 2nd Q GDP will be revised down significantly. 1% is a good guess. Third Q then would be about flat. Too early to call Q4 but a small up would be good news.
SS has fiscal 11 at 4%. At this point Q3 and Q4 of fiscal 2011 would have to be at 8% to achieve that. The SS short term forecast is going to get crushed.
Min,
When you make an assertion, it is your assertion. You claimed “noise”. I asked for evidence. You replied that you had made no claim.
Meanwhile, you’re ignoring your initial much broader claim. Your claim was that “trade” was on the rise because of consumer demand. Now, having been challenged on that point twice, you are quibbling about “noise” and avoiding points I made about actual data.
So, just to keep this on track – you claimed that “trade” was up because of consumer demand. I pointed out that imports accelerated while consumer demand decelerated, and that exports were stalled. You answered by claiming a superior understanding of what a stall looks like, based on a thing called “noise”. When asked to distinguish “noise” from a change in trend, you claimed to have no burden of proof because you’ve made no claim.
Except the claim about “trade” being driven by consumption. That was yours. And the claim that you could tell noise from signal just by looking. That was yours. But no burden of proof. You really want to hold yourself to standards that low? We can refer to actual data. We can use math. We can compare one thing to another. Or I can do those things while you claim superior statistical sense and quietly abandon your initial claim about the cause of “trade”. This your first rodeo?
kharris: “When you make an assertion, it is your assertion. You claimed “noise”. I asked for evidence. You replied that you had made no claim.”
As I explained to say that the leveling is noise is to say that it is insufficient evidence of stagnation. It is a response to a claim, for which I do not have the burden of proof. I am saying that it does not meet the burden of proof.
kharris: “Meanwhile, you’re ignoring your initial much broader claim. Your claim was that “trade” was on the rise because of consumer demand.”
What I said is that the jump in imports showed that people were starting to spend. Now, if you can have imports without people spending, I’d like to know how. The graph shows a clear turnaround in imports. Somebody is buying them, right?
I wonder how many readers of this blog read the full text release for U.S. International Trade in Goods and Services, June 2010.
News Release
http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm
Full Text
http://www.bea.gov/newsreleases/international/trade/2010/pdf/trad0610.pdf
All this shows is that the dollar needs to devalue to match the productive output of the US workforce. The reason it does not is because the US is the reserve currency for international trade, something Wall Street likes. If the US does not give up its financial empire as well as its military empire the country will inevitably collpase from within.
Min,
Analysis by assumption is a weak way to go, especially when:
a) data are readily available to test the assumption
b)I’ve already told you what the data say, and offered an alternative explanation.
To repeat, the data show that import growth accelerated while consumption growth decelerated in Q2. The obvious explanation is greater import penetration. Increased import penetration can raise imports without help from increased consumption. That’s the implication of the whole “marginal propensity” discussion in first year micro. If you don’t know that stuff, you shouldn’t be spouting economic opinions.
And really, you need to quit ducking behind that “burden of proof” thingie. I realize you are just repeating what you picked up elsewhere on the internet, but the internet is not really a good place to learn intellectual ethics. You are responsible for any statement you make in an argument. If you don’t know something to be supported by evidence, if you are unwilling to support your own statement, you are dishonest in making the statement.
But even if we are going to stoop to your extremely low standard, you still made an assertion. I’m getting tired of explaining to you why you are not supposed to say things you aren’t willing to support. The real reason is that honest people don’t say shit they don’t have reason to believe is true. But…here we go.
You claimed to know, to KNOW, that noise explained the failure of imports to rise in recent months. If you had said “Min isn’t convinced”, that would have been a true statement. That is not what you said. You made an assertion of fact. Now, you are claiming that you aren’t responsible for that assertion, because it was in response to an assertion I made. The way debate is done, each side makes assertions. Both sides are responsible for their assertions. When you claim that your assertion doesn’t need to be true because it was a response to my assertion, you are making shit up. People who are interested in understand don’t try to wiggle away from their earlier statements in order to claim a win. It’s like insisting on defining terms in a way convenient to your position, then claiming to be right.
This is a bizarre conversation, kharris.
Here is what I originally said about noise:
“The slight leveling off of exports is consistent with noise.
You can’t conclude that exports are faltering.”
I did not claim that the leveling of exports was noise, simply that it was consistent with noise. Given that, you cannot conclude that exports are faltering. That does not close the door to proof that there is a signal there, or to other evidence.
What I said to you:
“That is where we disagree. I do not believe that you can say that US exports are stagnant. The leveling off is consistent with noise, as the graph indicates.”
Again, “consistent with noise”. Again, questioning what you can say.
As for mentioning austerity in Europe, I said:
“Exports may stagnate, particularly with austerity measures in Europe. But the evidence is not in on that yet, is it?”
I was offering a possible reason that exports may stagnate. I was not offering an objection to it. In fact, I think that austerity measures in Europe will probably hurt US exports. But where is the evidence? I offered a possible reason because I have no horse in this race. I do not.
As for noise vs. signal, the burden of proof is on showing that there is a signal, not the other way around. We do not have to prove that UFOs are alien spacecraft.
Thank you, spencer. 🙂
That is both informative and helpful. 🙂
Oops. 😉
Of course I mean, we do not have to prove that UFOs are **not** alien spacecraft.