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Economy in Brief

U.S. Trade Deficit Rose As Exports Fell
by Tom Moeller December 11, 2008

The October U.S. foreign trade deficit rose unexpectedly. The modest rise to $57.2B from a little revised $56.6B during September contrasted with Consensus expectations for a narrowing to $53.5B. So far this year the monthly trade deficit has averaged $59.1B, slightly deeper than the $58.3B averaged during the first ten months of 2007.

Adjusted for price inflation the trade deficit in goods deepened to $46.4B from a revised September level of $42.0B which was larger than originally reported. Nevertheless, year-to-date the real deficit narrowed more than $10.0B versus 2007 to an average $44.9B as real exports surged 9.0% and real imports fell 2.1%. 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.

Developing recessions in economies abroad lowered U.S. exports for the third consecutive month. The 2.2% decline followed a 6.4% September drop that was slightly deeper than initially reported. The decline reflected a 2.8% drop in goods exports following the 8.5% September decline. Nevertheless, the increase in the competiveness of U.S.-made products due to past declines in the U.S. dollar lifted exports by 4.4% y/y. Adjusted for prices, chained-dollar goods exports slipped 0.9% (+0.7% y/y) after a slightly revised 8.2% September decline. Real exports of capital goods slipped 0.6% (-3.6% y/y) after a 9.6% plunge during the prior month. Exports of nonauto consumer goods fell 1.4% (+3.8% y/y) for the third consecutive monthly drop. Real exports of automobiles & parts fell 2.7% (-5.2% y/y) and real exports of foods, feeds & beverages slipped 0.4% (+1.5% y/y).

Nominal exports of services slipped 0.7% (+7.3% y/y) as travel exports fell. Though they fell hard for the second month, travel exports remained up 7.2% y/y. Passenger fares fell another 1.8% but remained up 15.3% y/y. That y/y gain was, however, half that of several months ago. Exports of "other" private services slipped 0.4% as year-to-year growth fell to 5.4% after an 18.2% gain during all of last year.

Despite the developing U.S. recession, petroleum imports rose 3.0% and they surged a surprising 20.8% in constant dollar terms. The gain was driven by a 22.0% m/m surge in the quantity of petroleum products imported. The quantity of crude petroleum imports jumped 28.0% (2.9% y/y) and that nearly recovered declines during the prior two months. The average price per barrel of crude oil fell to $92.02 (+26.8% y/y) from a high of $124.7 in July.

Recessionary forces were clearly evident in the 2.3% decline in the value of nonpetroleum imports. Measured in chained 2000 dollars, nonoil imports fell 1.6% (-4.9% y/y), though real imports of nonauto consumer goods rose 1.0% (-1.1% y/y) following a 7.7% decline during September. The chained-dollar value of imports of automotive vehicles & parts fell another 5.2% (-22.8% y/y) and real imports of nonauto capital goods fell 3.7% (-2.4% y/y).

Services imports were unchanged (+6.0% y/y) after the 3.5% September drop. Travel imports ticked up 0.2% (0.4% y/y) after the 4.6% September drop. Passenger fares rose 2.3% (11.8% y/y). That annual gain is half what it was earlier this year.

The U.S. trade deficit in goods with China deepened slightly to another record $28.0B. Exports to China made up for the prior month's shortfall and rose 14.1% (6.8% y/y) after 18.2% growth during all of last year. Imports rose 2.8% (7.8% y/y). That y/y growth is down sharply, with the weakening U.S. economy, from 20% to 30% rates of growth during the prior ten years. The trade deficit with Japan deepened again m/m to $6.0B but during the first ten months of this year it is down to average of $6.2B from an average $6.9B during the first ten months of last year. The trade deficit with Japan ranged between $5 and $8 billion between 2003 and 2007.

Foreign Trade  October September Y/Y 2007 2006 2005
U.S. Trade Deficit $57.2B $56.6B $56.3B (10/07) $700.3 $753.3 $711.6B
Exports - Goods & Services -2.2% -6.4% 5.3% 13.0% 13.5% 10.6%
Imports - Goods & Services -1.3% -5.7% 4.2% 6.1% 10.8% 12.8%
  Petroleum 3.0% -16.7% 25.7% 9.4% 20.1% 39.6%
  Nonpetroleum Goods -2.3% -3.5% -0.8% 4.8% 9.1% 10.3%
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