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Economy in Brief

The flows in the table below are the detail behind the trade headlines. In February the US trade deficit shrank by a small amount to -$58.44 billion from -$58.88 billion in January. If we look at the inflation adjusted flows for the quarter to date versus Q4 2006 there is a slight deterioration implying some subtraction from GDP due to trade flows in Q1 2007.
US Merchandise Real End-Use Trade Flows
Category Current Previous $SA % SAAR MEMO:
Feb.07 MO % MO % 3-MO 6-MO Yr/Yr Yr/Yr
Real Exports -3.7% 1.7% -9.7% -0.7% 5.3% 10.3%
Food, Feed, & Beverages -2.5% 5.2% 24.7% -12.4% 7.3% -0.2%
Industrial  Materials -4.0% 1.8% -16.4% -0.7% 5.4% 0.5%
Capital Goods -5.7% 3.2% -13.4% -0.2% 3.1% 18.5%
Autos & Parts 3.6% -6.8% 8.4% -5.1% 2.3% 13.6%
Consumer Goods -2.8% 3.7% 7.3% 7.2% 10.6% 7.6%
Other -3.6% -3.5% -46.5% -0.4% 14.9% 15.5%
             
Real Imports -1.9% 0.3% 0.5% -3.8% 2.6% 4.0%
Food, Feeds, & Beverages 0.5% 0.9% 6.9% -0.4% 4.1% 5.8%
Industrial Materials -7.7% 3.6% -4.9% -17.5% -9.3% 0.8%
Capital Goods -0.9% 5.5% 6.8% 0.4% 11.4% 10.3%
Autos & Parts -0.4% -7.2% -2.9% -3.9% -1.7% 8.4%
Consumer Goods 2.8% -3.4% 1.8% 10.5% 13.5% -1.0%
Other 0.2% -2.6% -3.8% 4.4% 5.8% 5.2%
The table above is a table of inflation adjusted merchandise trade for the end use commodity designations used to categorize trade flows. They show some slight deterioration in the quarter-to-date trade balance. But the real story in this report is export and import weakness. These flows are all inflation-adjusted so oil has a minimal impact even on industrial materials, the category that contains it. For the month we can see all export categories decline. The table also tells a tale of weak export trends. Export trends weaken overall and are outright negative in three of four categories in February. But broader export trends weaken too, and this is even more disturbing. Overall real export growth rates drop from 10.3% a year ago, to 5.3% Yr/Yr as of February 2007. Then they drop to -0.7% over six months and to -9.7% over the most recent three months (all expressed as annual rates of change). This pronounced slowdown in exports is disturbing.

For imports the slowing is not as dramatic but still is clear: from a 4% pace a year ago to a Yr/Yr pace of 2.6% currently. Then the pace drops off to -3.8% over six months slightly rebounds to an anemic +0.5% over three months (all expressed at annual rates).

Meanwhile, over a fairly long period, the dollar has been falling. Weak US exports cannot be blamed on poor US competitiveness; US competitiveness has been improving. US export weakness suggests instead that growth overseas is weaker than what the IMF is saying in its recent WEO (World Economic Outlook).

The weakness in export trends is quite apparent and does not seem to be the result of a normal statistical variation. The slowing seems real and economic instead of false and statistical in nature.

For imports the slowing is more gradual and authentically fits in with the slowdown in the US economy, it may be this slowing that has transmitted weakness abroad and come back to haunt the US in the form of slower US exports abroad.One thing about the world economy, for all its growth few regions have really developed much true domestic demand. US growth has been the lynchpin of world growth and as it has faded no other source of indigenous demand has cropped up. Japan has faltered, recent Germany’s weakness is exaggerated by its VAT introduction. Still Germany does not show that much strength except from external orders and exports.There is no pick up in local demand of any significant degree.  While everyone remains upbeat on Europe it has yet to show it can prosper without export-led growth. The strong euro may already be putting it to a test too strong for it to pass. Is that the message in weak US exports?
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