U.S. Trade Deficit Deepest Since Last August, Oil Imports Surged

The U.S. foreign trade deficit deepened to $63.1B in November from an unrevised $57.8B during October. Consensus expectations had been for a deficit of $60.0B.

During the first eleven months of 2007 the deficit averaged $59.1B versus an average of $63.5B during the first eleven months of 2006.

U.S. exports rose 0.4% after an unrevised 0.9% gain during October. During the first eleven months of last year exports rose 12.3%.

Exports of goods ticked up just 0.1% (13.7% y/y) after a 0.5% advance during October. The latest was the smallest rise since a slight decline last April. Exports of capital goods reversed much of an October surge with a 2.3% (+6.1% y/y) drop. Exports of civilian aircraft (-2.4% y/y) reversed nearly all of an 18.7% drop. Exports of computers surged 8.6% (22.3% y/y) but nonfood exports less autos fell 0.9% (+8.9% y/y).

U.S. exports of services rose another strong 1.3% (11.4 y/y). Travel exports jumped again by 1.1% (21.2% y/y) and passenger fares surged 2.1% (18.1% y/y).

Overall imports surged 3.0% as higher oil prices raised petroleum imports by 16.3%. The quantity of energy related products fell 3.3% (+3.1% y/y) but the per barrel price of crude petroleum surged 9.9% (52.5% y/y). Imports of nonauto consumer goods surged 2.0% (4.1% y/y) after a strong 1.2% October gain but capital goods imports rose just 0.4% (5.9% y/y) after a 1.4% October decline.

Imports of services rose 0.4% (8.3% y/y) after a 1.0% October increase.

The U.S. trade deficit in goods with China improved slightly m/m to $24.0B. During the first eleven months of 2007 the deficit with China averaged $21.6B versus $19.4B in 2006. Exports to China rose 20.9% y/y and imports rose 7.2%.

Yesterday's speech titled Financial Markets, the Economic Outlook, and Monetary Policy by Federal Reserve Chairman Ben S. Bernanke can be found here.

The OECD trend restores leading indicators show a slowing is in progress across the OECD area. The OECD prefers to look at 6-month changes in its indicators; these are presented for four separate non-overlapping periods at the bottom of the table. All regions/countries shown have declines over the recent past six months - that indicates a loss of momentum. Over the previous 6-months only OECD Europe was declining, although Japan barely avoided decline with a 0.1% rise. Then over the previous two six month periods all regions saw their trend restored leading indicators declining. What we have is a slowdown that is broad-based.
It is very severe in some places. Japan’s six month drop of 7.5% is sharp. The US drop of 3.8% is also considerable. The OECD Europe drop of 2.4% is substantial.

In the chart above we plot the various indices against the recession bars for the US. The current US decline is not as severe as it was the last time that the US went into recession. Japan’s decline is on the same order of magnitude as it was the last time the US was in recession, however. Europe’s decline is more like the sort of slowing it had in 1996 than when the US was in recession in 2001. However, for all these comparisons the situation is still in flux and in most places flux means that conditions are still deteriorating.

The Economy watcher indices and the Teikoku indices are all at relative low points in their respective ranges. The headline economy watchers index is in the bottom 5% of its five year range. Still Japanese authorities say that the virtuous circle is intact (some circle). The Economy Watchers’ employment index is at a five year low. The future index from the Economy Watchers complex is in the bottom 1.5 percentile of its five year range. Surely this can’t be good.

We can add to this the finding in the November US trade report that real non petroleum US exports growth has turned negative over three months. Surely the rest of the world economy is slowing down and slumping US exports – despite their competitiveness- is one sign. These results from Japan are just another piece of the puzzle that helps to explain US export weakness despite a huge decline in the dollar exchange rate (although it’s not so weak vs the yen).

The Teikoku sector indices echo the Economy-Watcher findings. The manufacturing, retail and wholesale sector indices are on five year lows. Construction is in the bottom 16% of its range. Services are ‘relatively strong’ holding to the bottom 20% of their range…

Japan is still slowing and expectations of the Economy Watchers do NOT see a turning here soon. Results still seem to be worse than what the government wants to admit.

Overall import prices were unchanged, as expected, last month after the revised 3.3% spurt during November.

Petroleum prices, overall, eased 0.6% after the 12.7% November surge. Crude petroleum prices rose 0.6% (53.5% y/y) after a 12.0% November jump while fuel oil prices fell 5.5% (+43.5% y/y).

Less petroleum, import prices rose 0.3% after a 0.7% November gain.

During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a reduced 47% against a broader basket of currencies for industrial supplies & materials excluding petroleum rose another 0.7% (6.9% y/y). The detailed import price series can be found in the Haver USINT database.

Capital goods import prices were unchanged (0.8% y/y). Prices of computers, peripheral and semiconductors fell 0.6% (-5.3% y/y) and less the high tech sector capital goods prices rose 0.3% (3.4% y/y).

Prices for imports of nonauto consumer goods rose 0.2% (1.6% y/y) as apparel prices rose 0.3% (1.9% y/y). These prices had been unchanged or declining through 2004 to 2006. Prices for household goods rose 0.1% (1.2% y/y) and that y/y growth has been fairly stable.

The gain in overall export prices eased to 0.4%, half the prior month's increase. Agricultural prices surged again, last month by 2.7% (23.5% y/y) which was double the November increase. Prices for nonagricultural price goods eased to a 0.3% (4.5% y/y) rise after a 0.9% surge during November.

Sovereign Wealth Funds: Stumbling Blocks or Stepping Stones to Financial Globalization? from the Federal Reserve Bank of San Francisco can be found here.