October Trade Headlines Look Good, Details Not So Much

December 10, 2009

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

Trade data for the month of October, released this morning by the Bureau of Economic Analysis (BEA), was all good news, as long as you don’t look too deeply into the report.  The big headline is that the trade deficit fell by $2.8 billion to a deficit of $32.9 billion.  Indeed, that is good news.  Exports rose by $3.5 billion – more good news, more than off-setting a smaller rise of $0.7 billion in imports.  However, the 3-month moving average rose from a deficit of $32.5 billion per month in September to $33.0 billion in October – not good news. 

The trade balance is a combination of goods and services.  The balance in services improved by $0.1 billion, so almost all of the improvement is in goods – more good news.  The trade deficit in goods improved from -$47.4 billion in September to -$44.8 billion, a reduction of $2.6 billion. 

Of that improvement in the goods trade deficit, most is due to oil.  The volume of oil imports, 8.34 million barrels per day, was the lowest level since January of 2000.  So our trade deficit in petroleum products fell by $2.7 billion.  But the BEA reports that the deficit in non-petroleum goods (which includes manufactured products) also fell by $0.6 billion.  (The reason these two add up to reductions of more than $2.6 billion is what the BEA calls “adjustments.”)

Any time I hear that the trade deficit in manufactured goods declined in this environment of free trade with overpopulated nations, I get suspicious.  So let’s examine the data more closely.  Click the above link to the BEA report and go to “Exhibit 6.  Exports and Imports of Goods by Principal End-Use Category” found on page 6 of the report.  There you’ll see six end-use categories.  The first, “Foods, Feeds and Beverages,” is exactly that – trade in food products.  The second, “Industrial Supplies,” is dominated by trade in petroleum.  It’s the next four categories that comprise manufactured products – “Capital Goods,” “Automotive Vehicles, Etc.,” “Consumer Goods” and “Other Goods.”  Let’s examine these categories and see where any improvement in manufactured goods may be found. 

The first category, “Capital Goods,” is basically the machinery and equipment used by industry.  As you can see, we have a pretty good balance of trade there, with $33.72 billion in exports and $32.04 billion in imports, a trade surplus of $1.68 billion.  In September we had a trade surplus of $1.6 billion in that category.  So there’s very little improvement there.

The second category, “Automotive Vehicles, Etc.,” includes both cars and parts.  In September we had a trade deficit of -$8.83 billion.  In October it remained unchanged at -$8.83 billion.  Small increases in exports were off-set by imports.  No improvement in the trade balance in this category of manufactured goods. 

The third category, “Consumer Goods,” includes just about every other product you can imagine that you might buy including clothing, appliances, electronics, etc.  In September we had a trade deficit of -$22.63 billion.  It remained unchanged in October at -$22.63 billion.  Once again, absolutely no improvement.

The fourth category, “Other Goods,” by far the smallest of the goods categories, representing only 3.5% of trade in goods, will remain a mystery to anyone who tries to figure out what it is.  Nowhere is it explained in the report.  However, since I’m able to match up the product descriptions found in “Exhibit 8” on page 9 with the product codes in the trade data I track country by country, I can tell you for certain that “military aircraft” and “military equipment” are included in this category.  So what happened in this category?  In September we had a trade deficit of -$1.40 billion.  In October that fell to -$0.46 billion, an improvement of $0.94 billion. 

If you’ll examine the “Other Goods” category more closely, you’ll see that the level of imports and exports swing fairly dramatically (in percentage terms) from one month to the next. 

In conclusion, all of the improvement in the trade deficit in October can be traced to two factors – unusually low levels of oil imports (almost certain to be reversed in November), and a big swing in the category that includes military aircraft and equipment and is likely influenced by big swings in shipments.  In other words, there’s nothing in the October trade deficit data that shows any improvement in U.S. manufacturing vis-a-vis other countries.