Friday, May 09, 2008

U.S. Trade Deficit At 5-Year Low?

The U.S. trade deficit for March was somewhat lower than expected as exports dropped but imports dropped even more. All other things being equal this will raise GDP, but it is not certain that GDP really will be upwardly revised as for example inventories unexpectedly fell. These two numbers are probably connected in the sense that less was imported and put into inventories.

Illustrating the point I made in my LRC article, the trade deficit fell to what was said to be a 5-year low of $47.5 billion adjusted for the import- and export price indexes. Yet back in 2003, the monthly trade deficit was running at $40 billion per month, compared to $58.2 billion now. Considering that the gross domestic purchases index has risen just about 15% since then, that seems unreasonable. What is at work here is instead a significant deterioration in terms of trade. While the export price index has risen about 20% since then, the import price index is up 30%, thereby significantly reducing the price adjusted real imports significantly, even though the cost for Americans is significantly up. Americans are paying much more relative to their income, but they're not getting more.

For April, the deficit seems likely to rise again significantly, mainly due to oil. While the volume of oil imports fell in March, they rose again in April according to the EIA. And the price will certainly continue to rise. The average price paid in March was just $89 per barrel, compared to the current level of $125. The combination of higher volumes and higher prices will of course cause the cost to soar, something which will likely boost the overall trade deficit.


Blogger Celal Birader said...

Hello Stefan ... Question : that average $89/barrel figure is intriguing. Does it come from somewhere on the EIA site ? Or is it from other data ? Thanks !

8:34 PM  
Blogger stefankarlsson said...

No, it comes from the trade report, or actually a media article about the trade report.

3:09 PM  

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