Economy in Brief: June 2022

The trade deficit for the European Monetary Union (EMU) ballooned to 31.7 billion euros in April after logging a 17.8 billion-euro deficit in March. The balance on manufacturing trade slipped to a smaller surplus in April of €20.8 billion, down from €23.5 billion in March; however, the deficit balance for nonmanufacturing trade widened to 52.5 billion euros in April from 41.3 billion euros in March. It's the widening deficit on nonmanufacturing trade that has driven the overall European Monetary Union trade position into deficit, and it is now driving it deeper into deficit.

The EMU deficit has weakened sharply Over 12 months the average trade deficit for the EMU is a deficit of €3.1 billion that consists of a €26.2 billion surplus in on manufacturing trade and at €29.3 billion deficit on nonmanufacturing trade. Comparing that to the 12-month average for the year 12-months previous, the EMU had posted a €20.4 billion surplus. That was generated by a manufacturing surplus of €30.1 billion versus a nonmanufacturing deficit of €9.7 billion. Compared to those averages, the current balance on manufacturing trade has lost one third of its surplus while the deficit on nonmanufacturing trade has expanded by a factor of 5.5 times.

EMU exports Rising commodity prices are wreaking havoc on trade positions globally. The EMU area shows manufacturing exports growing at a 12.4% annual rate over 12 months, at 17.4% annual rate over six months, falling off to a 4.4% annual rate over three months. On that same timeline, nonmanufacturing exports grow 35.2% over 12 months, accelerate to a 47% annual rate over six months, and accelerate again to a nearly 72% annual rate over three months.

EMU imports For imports, the EMU manufactured imports are up to a 23.3% annual rate over 12 months, increase to a 31% annual rate over six months, then fall back to a 17.4% annual rate over three months. Nonmanufacturing imports rise 94.6% over 12 months, accelerate to a 125% annualized rate over six months, and then log blowout growth at a 207% annualized pace over three months. While nonmanufacturing flows are accelerating for both exports and imports, it's on the import side where nonmanufacturing imports have simply gone wild.

Germany, France, and the U.K. The lower panel of the table shows export and import trends for Germany, France, and the United Kingdom. In two of three cases, imports grow faster than exports by about a two to one margin or more over 12 months. Over three months, once again, import growth rates dominate export growth rates. France shows tighter margins between export and import growth rates although import growth rates continue to dominate export growth rates over all three horizons for France.

Other export trends Export trends for Finland, Portugal, and Belgium show strong growth for exports. Strength for the period is evident particularly for Finland and Portugal. Finland shows a slowing in exports, but that slowing only takes export growth rates from a 37% pace over 12 months to a 28% annualized pace over three months. Portugal shows exports at a 21.5% pace over 12 months and at a slightly stronger 23.4% annualized pace over three months. For Belgium, there's a clear slowdown in place with exports at a 27.5% pace over 12 months dipping to a 7.6% annual rate over three months.

At today's meeting of the Federal Open Market Committee (FOMC), the Fed announced a 75 basis point increase in the target for the Federal funds rate to 1.50% - 1.75%. It placed the rate at the highest level since March 2020. The move was greater-than-expected in the Action Economics Forecast Survey due to recent, strong inflation readings.

Fed Chairman Powell indicated that "today's 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common..."

The statement accompanying today's action indicated that "Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures."

In addition, the Fed will continue reducing its portfolio of Treasury securities and agency debt and agency mortgage-backed securities.

Today's action was endorsed by all but one member of the FOMC, who voted for a 50 basis point increase.

The statement issued following today's meeting can be found here.