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Economy in Brief

U.S. Trade Deficit Shrank With Lower Oil Prices & Recession
by Tom Moeller November 13, 2008

The U.S. foreign trade deficit narrowed in September somewhat more than expected. At $56.5B versus an unrevised $59.1B during August, the deficit was its smallest since last October. So far this year the monthly trade deficit has averaged $59.4B, still deeper than the $58.5B averaged during the first nine months of 2007.

Adjusted for price inflation the August trade deficit in goods improved to $39.0B from $40.9B in July. Year-to-date the real deficit has narrowed by $10.0B versus 2007 to an average $46.1B as real exports surged 10.3% and real imports fell 1.2%. A narrower trade deficit was estimated to have added 1.1 percentage points to real GDP growth last quarter following a 2.9 point addition during 2Q.

Lower oil prices helped imports shrink 5.6% after a 2.2% decline during August. Imports of all energy-related products fell 21.4% (+31.9% y/y) as the value of crude petroleum imports fell by more than one quarter. That drop owed to a decline in the average price per barrel of crude oil to $107.58 (+57.2% y/y) from a high of $124.7 in July. The developing U.S. recession prompted a 15.1% decline (-16.2% y/y) in the daily quantity of crude petroleum imports.

Recessionary forces were additionally evident in the 3.6% decline in the value of nonpetroleum imports. Measured in chained 2000 dollars nonoil imports fell 2.7% (-3.7% y/y), pulled lower by a 7.8% decline (-0.9% y/y) in real imports of nonauto consumer goods. The chained dollar value of imports of automotive vehicles & parts also fell by another 3.7% (-17.9% y/y). Real imports of nonauto capital goods reversed their August decline and rose 1.5% (0.9% y/y).

Services imports reversed past strength and fell 3.4% (+6.7% y/y). Travel imports fell by 2.7% with the developing economic weakness (+4.0% y/y) while passenger fares fell 3.9% (+5.8% y/y). Both of these y/y increases are down sharply, from 12% for travel and from 20% for passenger fares, as of early this year.

As economies abroad weakened exports fell by 6.0% (+8.8% y/y) during September. The decline reflected an 8.3% drop in goods exports. Adjusted for prices, chained dollar goods exports fell 7.8% (+2.3% y/y) led lower by a 9.6% (-0.8% y/y) drop in capital goods. Exports of autos & parts fell 1.4% (-2.0% y/y) after their 13.9% August plunge while real exports of nonauto consumer goods fell 3.3% (+4.7% y/y) on the heels of their 5.9% August drop. Adding to this weakness was a 10.8% (-5.4% y/y) drop in real exports of foods, feeds & beverages.

Nominal exports of services ticked 0.1% lower (+9.3% y/y) as travel exports fell 2.3% (+16.7% y/y). Passenger fares slipped 0.6% (+31.0% y/y). Exports of "other" private services have deteriorated markedly but ticked up 1.6% during September. Year-to-year growth fell to 4.7% after an 18.2% gain during all of last year.

The U.S. trade deficit in goods with China deepened to a record $27.8B and during the first nine months of this year averaged $21.7B versus $20.8B during the first nine months of 2007. Exports to China fell 18.2% last month (-5.1% y/y) after 18.2% growth during all of last year and imports rose 3.9% (12.5% y/y). The trade deficit with Japan deepened to $5.6B but during the first nine months of this year it is down to average of $6.3B from an average $6.8B during the first nine months of last year.

Foreign Trade  September August Y/Y 2007 2006 2005
U.S. Trade Deficit $56.5B $59.1B $55.5B (9/07) $700.3 $753.3 $711.6B
Exports - Goods & Services -6.0% -1.7% 8.8% 13.0% 13.5% 10.6%
Imports - Goods & Services -5.6% -2.2% 6.9% 6.1% 10.8% 12.8%
  Petroleum -15.7% -13.9% 31.5% 9.4% 20.1% 39.6%
  Nonpetroleum Goods -3.6% 1.0% 1.6% 4.8% 9.1% 10.3%
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