Economics, International economy

Trade numbers flash danger sign for U.S. economy

Reuters:

The U.S. trade deficit shrank 12.4 percent to $46 billion in February, the biggest month-to-month decline since May 2009, the Commerce Department said, as exports hit a record high. That could prompt economists to raise their estimates for first-quarter gross domestic product.

Right, since trade deficit numbers are subtracted from GDP, a declining one means a bigger GDP number. But there is a big potential downside here, as economist Robert Brusca points out:

So when I saw the trade numbers today, a lower deficit shocked me at this time when the economy was supposed to be accelerating and Europe was slowing..How the heck did that happen?

When I looked more closely, I saw exports (merchandise exports) had turned negative in the month and thought ‘Oh Boy’ the Euro-chickens are coming home to roost – and more – so cover your head if they try to fly.

But my most dire reaction was to non-petroleum imports which fell by 3.3% in the month.

Annualize that, and it is nearly a 50% annual rate of decline. I wondered… ‘when did we last see that?’

Well in a data string that is 241months long, or over 20 years long, imports (non-petroleum imports) have fallen by more than that month-to-month only 9 times; seven of those nine times were in recession. The other two of those nine times were ‘book end’ months for the start and the end of the 2001 recession. In other words ONLY IN and around RECESSIONS.

One thing I have always firmly believed is that the trade numbers, imports in particular, are a good benchmark for the domestic economy We do not have GDP data yet and the trade data do lag but this report for February is OMINOUSLY weak.

I Do NOT LIKE IT. We simply do not see imports fall this much in one month without there being a collapse in domestic demand.

And here is Citigroup:

Separately, the nominal trade deficit narrowed more than expected in February, shrinking to $46.0 billion from $52.5 billion in January. Imports fell a sharp 2.7% with the pullback spread across most sectors including a 16.6% drop in crude petroleum volume (see Figure 1). Combined with a just 0.1% rise in exports, the trade balance narrowed to the smallest gap since October 2011.

The real trade balance in goods narrowed to $44.1 billion in February from $49.1 billion in March, suggesting that this report could add substantially to 1Q GDP. However, the report was generally weak with real exports falling 1.0% and real imports sliding 3.9%. While a near-term boost to 1Q GDP, the pullback in trade volume signals soft demand both in the U.S. and abroad.

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