11 December 2010
Traditional media was all atwitter on Friday that the U.S. trade deficit had fallen, but that's a little misleading.
The U.S. Commerce Department released the October 2010 trade data and, comparing the defict to the previous month's deficit with the world, proclaimed that there was good news: The U.S. trade deficit had fallen from $58.6 billion to $52.5 billion.
When viewed this way -- October to October -- the news is not as good. The U.S. trade deficit for the month of October 2009 was a smidgeon more than $47 billion. That means, the U.S. trade deficit in October 2010 actually increased $5.5 billion.
While that's more telling than comparing the deficit total to the previous month -- September's number -- the best idea is to look back to 2008, when U.S. trade was still robust and breaking records, as was the norm before the devastating U.S. and global recessions. In the month of October 2008, the U.S. trade deficit was $74.6 billion. From that point, the U.S. trade deficit has fallen $22.1 billion.
The problem with paying so much attention to the U.S. trade deficit is that it shifts focus away from the underlying numbers, which are often more telling and more interesting.
The bigger picture is this: When comparing monthly U.S. data in 2010 to the same month in 2009, trade increased at more than a 20 percent rate from February through August, when the increase was greater than 27 percent. In September, the increase fell below 20 percent for the first time since January, to 17.9 percent. In October, the increase was 16.5 percent. On a monthly basis, then, the rate of trade growth is clearly slowing.
That is largely because U.S. trade's free-fall began to slow toward the end of 2009, so the numbers are increasingly difficult to top by more than 20 percent. By the same token, no one should expect trade to be increasing 20 percent year-over-year in 2011; a great deal of the recovery has occurred this year. A more historically normal increase will be in the 8-12 percent range.
Exports in 2010 are showing a similar pattern. From March through August, when compared to the same month in the previous year, the rate of growth exceeded 20 percent. In September and October, that rate dropped below 20 percent, 17.9 percent and 17.6 percent, respectively. On the import side, lies the explanation for the decrease in the trade deficit between October 2010 and September 2010, as unfortunate as the comparison might be.
Starting in March, U.S. imports increased at more than 20 percent until August, increasing more than 30 percent in both June and August and 29.8 percent in April. In October, however, the rate of growth in U.S. imports fell to 15.7 percent.
The good news in the trade data is that when looking at year-to-date data -- January through October -- the numbers are largely good. The year 2010 will be the second-best year for U.S. trade in history. Once again, the total will surpass $3 trillion. Through October, total trade was $2.6 trillion, a 23.1 increase over the same period in 2009, 10.1 percent below the record year of 2008 and a slight 2.3 percent above the 2007 total.
It also has been progressing steadily through the year. While year-to-date trade in October 2010 was off 10.1 percent when compared to October 2008, it was off 14.3 percent in January, when compared to January 2008, and 12.1 percent in July, when compared to the first seven months of 2008, the same period. The gap is narrowing.
Looking at exports, the numbers are, generally speaking, equally positive. For only the second time ever, U.S. export topped $1 trillion by October. When compared to 2009, exports are up 21.5 percent -- slightly less than overall trade. When compared to the same period of 2008, exports are down 4.9 percent, which is better than the performance of overall trade. Exports in 2010 are up 10.7 percent over the 2007 total through October.
Earlier in the year, as with total trade, the numbers were not as positive. Even in September of 2010, when compared to the first nine months of 2008, exports were off 7.1 percent. In October, that percentage had fallen to 4.9 percent. Again, the gap is narrowing between 2010 and the record year of 2008.
Looking at imports, the numbers aren't quite as strong, a reflection of continuing weakness in the U.S. economy -- a primary factor in the decrease in the U.S. trade deficit. The total through October 2010 of $1.58 trillion is less than the total in 2007 ($1.62 trillion) and 2008 ($1.82 trillion) and barely above the total in 2006 ($1.55 trillion).
U.S. consumers are spending far less than at any time since 2006 while the consumer classes in other markets around the world are not experiencing the same difficulties, particularly in China, Brazil and other develping nations.
But, when comparing 2010 and 2008 data, the data has looked better as the year has progressed. In January, imports were off 19.2 percent. For the first time in October, the decline slipped below 14 percent to 13.3 percent.