U.S. Trade Deficit in May Soars to Worst Level of Obama’s Administration

July 12, 2011

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

As reported by the Bureau of Economic Analysis (BEA) this morning (link provided above), America’s trade deficit jumped in May to $50.2 billion, easily beating the previous worst level of the Obama administration, $47.9 billion in January of this year.  Since President Obama took office in January, 2009, the overall trade deficit has risen by 35%.  The goods deficit soared to $64.9 billion in May (an annual rate of $779 billion), and is up by 39% since President Obama took office.  Since January of 2010, when President Obama pledged to double exports, America’s overall trade deficit, the deficit in goods and the deficit in manufactured goods are up by 34%, 33% and 26% respectively.  The following is a chart of the overall trade deficit since the president made his pledge in January, 2010.  As you can see, I actually had to increase the scale of the y-axis this month (from -$50 billion to -$55 billion) in order for May’s deficit to register on the chart:

Balance of Trade

However, the president can legitimately claim that he is meeting his goal.  Here’s a chart of exports and the trajectory they must take to meet his goal of doubling exports in five years:

Obamas Goal to Double Exports

But what does that matter?  The problem here is that, like so many others, the president has made the classic mistake of focusing on only one half of the trade equation.  Yes, increasing exports boosts jobs, but rising imports destroys them just as quickly.  And, given the lack of focus on imports, it’s no surprise that they’re rising more quickly than exports, just as they have for decades.  The president puts all of his focus on exports, where we have virtually no control, and completely ignores imports, over which we have total control (if we would simply return to the use of tariffs to manage the overall balance of trade).  Such trade policy, which is nothing more than the continuation of the same trade policy we’ve followed since the signing of the Global Agreement on Tariffs and Trade (GATT) in 1947, makes absolutely no sense whatsoever.  It’s negligent and irresponsible. 

Today the president will meet with congressional leaders  for the umpteenth time in the nearly year-long battle to raise the debt ceiling as they struggle mightily to identify spending cuts and revenue increases to cut the projected budget deficit by $2 trillion over the next ten years.  Compare that to the cumulative goods trade deficit of nearly $8 trillion during the same time frame, and that’s if the trade deficit freezes at today’s level.  Is it any wonder that we have fiscal problems?  If trade in goods were balanced, the increase in revenue from the increase in GDP alone would cut the budget deficit more than $2 trillion. 

With the exception of overall exports, by every other measure the president’s trade policy has been an abysmal failure.  And it’s likely that even that one measure will begin to lag as the global debt crisis begins to erode the rest of the world’s ability to absorb American exports.  But let’s put the blame where it really lies, at the feet of the economists who guide his economic  policy.  After all, Obama is just a politician, like every president before him, and takes his guidance on economic policy from a team of economists.  Until the field of economics crawls out from under the rock of their early-1800s trade theories, until they uncurl themselves from the fetal position adopted in response to their beat-down by the other sciences in response to Malthus’ theory, and once again consider the full ramifications of the parameter that, by far, most dominates today’s economy – overpopulation – nothing will change, regardless of whether we leave Obama in office or replace him with someone else who takes their guidance on the economy from another team of economists.


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.


Real Per Capita GDP Falls 1.5%, Recession Now One Year Old

November 26, 2008
Yesterday, November 25, the Bureau of Economic Analysis announced that real GDP* in the 3rd quarter fell at an annual rate of 0.5%, worse than its preliminary estimate of a decline of 0.3%.  But GDP is a meaningless figure if it’s not related to the size of our population. Since the U.S. population is steadily rising at an annual rate of about 1%, then the GDP pie has to be sliced into more pieces. If the pie isn’t growing faster than the population, then everyone gets a smaller piece. In other words, the effect on individual Americans is even more pronounced than raw GDP data would lead us to believe. In the 3rd quarter of 2008, real per capita GDP fell by 1.5% to $38,412 per person (adjusted for inflation and expressed in 2000 dollars). That’s a decline three times as bad as the government’s raw GDP data.

This is the third quarterly decline in real per capita GDP in the last four quarters. Only the second quarter of 2008 had a small gain of 1.8%, thanks to the fiscal stimulus package. Real per capita GDP is actually lower than it was in the 3rd quarter of 2007. And all experts agree that the 4th quarter of 2008 will be much worse.  Since real per capita GDP is a much better gauge of how the economy impacts individual Americans, I use this for my definition of a “recession.”  By this definition, America has now endured a full year of recession, and it promises to get much worse.

The trade deficit continues to be a huge drag on real per capita GDP. Were it not for the trade deficit, 3rd quarter real per capita GDP would have been 6.0% greater at $40,733 per person. (Imports are a subtraction from GDP in the BEA’s calculation.) If the next president is looking for a way to turn the economy around, the trade deficit would be a great place to start.

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* – Annualized 3rd Quarter Actual GDP, expressed in current dollars, was $14.420 trillion, compared to $14.295 trillion in the 2nd quarter.  However, “real” GDP, which is adjusted for inflation and expressed in 2000 dollars, was $11.712 trillion, compared to $11.727 trillion in the 2nd quarter.


Real Per Capita GDP Falls 1.2%

October 31, 2008
The Bureau of Economic Analysis reported Thursday that 3rd quarter real GDP* fell at an annual rate of 0.3%. But GDP is a meaningless figure if it’s not related to the size of our population. Since the U.S. population is steadily rising at an annual rate of about 1%, then the GDP pie has to be sliced into more pieces. If the pie isn’t growing faster than the population, then everyone gets a smaller piece. In other words, the effect on individual Americans is even more pronounced than raw GDP data would lead us to believe. In the 3rd quarter of 2008, real per capita GDP fell by 1.2% to $38,438 per person (adjusted for inflation and expressed in 2000 dollars). That’s a decline four times as bad as the government’s raw GDP data.

This is the third quarterly decline in real per capita GDP in the last four quarters. Only the second quarter of 2008 had a small gain of 1.8%, thanks to the fiscal stimulus package. Real per capita GDP is actually lower than it was in the 3rd quarter of 2007. And all experts agree that the 4th quarter of 2008 will be even worse.

The trade deficit continues to be a huge drag on real per capita GDP. Were it not for the trade deficit, 3rd quarter real per capita GDP would have been 6.0% greater at $40,733 per person. (Imports are a subtraction from GDP in the BEA’s calculation.) If the next president is looking for a way to turn the economy around, the trade deficit would be a great place to start.

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* – Annualized 3rd Quarter Actual GDP, expressed in current dollars, was $14.429 trillion, compared to $14.295 trillion in the 2nd quarter.  However, “real” GDP, which is adjusted for inflation and expressed in 2000 dollars, was $11.720 trillion, compared to $11.727 trillion in the 2nd quarter.