Misleading Trade Report Headlines

Misleading Trade Report Headlines

March 11, 2008 0 Comments

(March 11, 2008) – The Department of Commerce released their U.S. International Trade in Goods and Services: January 2008 this morning, reporting that total January exports of $148.2 billion and imports of $206.4 billion resulted in a goods and services deficit of $58.2 billion, up from $57.9 billion in December, revised. January exports were $2.4 billion more than December exports of $145.9 billion. January imports were $2.7 billion more than December imports of $203.7 billion.

The headlines were “Deficit Widens As Oil Prices Hit Record.” After all, you need a scary headline to get people to read your story or watch your TV show. But nobody actually reads these things–the facts are quite different.

Like the Sherlock Holmes story about the dog that didn’t bark in the night time, the most interesting thing about today’s January Trade Report is what was not in it.

On its face, the January trade report looks straightforward. Americans exported $148.2B and imported $206.4B of goods and services in January. This yields a $58.2B goods and services deficit for January, a little better ($1.3B) than street expectations of $59.5B; a little worse ($0.3B) than the $57.9B recorded in December or the $57.4B figure a year earlier.

Yawn. So what was so interesting?

? The December trade deficit number was revised down by $0.7B to $57.9B from the December number ($58.6B) published a month ago. This more than offsets the deficit increase increase reported today’s headlines. Why does this matter? Because the January number is going to be revised downward too, but by a much larger amount. More on this below.
? The numbers are reported in current dollars, at current prices, not in real terms. Import prices (think oil) are rising faster than export prices (think capital goods and computers). Adjusted for price increases, the trade deficit in goods is $6.6 billion smaller than last January. That means real trade activity, as measured in boxes, tons, or jobs, is doing a lot better than the reported numbers suggest.
? The increase was all oil. Thanks to rising oil prices, our trade deficit with OPEC countries increased by $2.5B in one month.
? But by far the most interesting thing that was not in the January trade report was February. This is important because yesterday, China released its February trade report, which gives us a peek at what we can expect to see a month from now when the US Census Bureau releases our February trade report. I think we are going to see a sharp drop in the February trade deficit and a sizable downward revision in the January figure that was reported today.
? When a ship full of products leaves China they call it exports. When it arrives in the US we call it imports. Unless something falls off the boat during the crossing (or someone does not know how to count) the numbers should be mirror images of each other.
? China’s overall February trade surplus of $8.6B fell by 63% from $23B a year earlier. Imports grew 35% to $78.8B; exports grew by only 6.5% to $87.4B.
? China’s February trade surplus with the US fell by 23% to $9.4B from $12.2B a year earlier. China’s exports to the United States fell 5% in February to $16.4 billion, while imports of American goods jumped 33% to $6.1 billion.
? But hang on a minute before you get too excited. A lot of the shrinkage in China’s February trade surplus was caused by the big snow storm that virtually shut down the northern half of the country just before the Chinese New Year. (HINT: the odds for a similar snow storm diminish substantially each month between now and August.) The storm reduced coal production and interrupted China’s transportation system, which halted the movement of coal to the power plants and goods to the ports. Coal shortages forced power plants to reduce output; without power many manufacturing plants were forced to shut down. Exports of finished product were reduced, shrinking the trade deficit for the month. Thankfully, these problems should improve, allowing factories to catch up to their orders in the months ahead. So don’t expect another big shrink next month. But still, in today’s markets we will take all the good news we can get.


John Rutledge


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