Trends in U.S. Trade

November 13, 2008

The September goods and services deficit of $56.5 billion represented an eleven-month low. Oil accounted for all of the improvement. The big picture, however, is one of stalled improvement. The deficit of $59.4 bn over the first nine months of 2008 was 1.0% wider than a year earlier in contrast to a 9% shrinkage in the deficit between January-September 2006 and the first nine months of 2007. Normally, J-curve effects, wherein export prices rise relative to import prices because of a strengthening dollar, would be expected to have reduced the trade deficit in 2008, but any such benefits were neutralized by the higher bill for imported energy. Energy imports are now dropping rapidly, but the volume effects of a stronger dollar and weaker export markets will mitigate any reduction of the trade imbalance. Opec’s share of the deficit spiked to 24.1% in January-September from 15.2% a year earlier but receded to 18.0% in September alone. The table below presents the contributions to America’s trade deficit from major regional blocs, expressed as a percentage of the overall deficit in the indicated period. The deficit shares are not exhaustive and thus do not add up to 100.0%, although they capture most of the total gap. One sees that China is filling most of the trade gap vacated by Opec’s shrinking share. On November 11th, China reported a record global trade surplus of $35.2 billion for October, compared to $29.3 bn in September and $21.4 bn per month during the year to September. U.S. trade numbers today were for September, so China’s release suggests that the U.S. imbalance could widen even though oil prices fell further last month.

% of Deficit Opec China Western Hemisphere Europe Other Pacific Rim
September 18.0% 37.5% 21.0% 12.9% 9.5%
Jan-Sept ’08 24.1% 31.2% 21.8% 13.0% 10.1%
Jan-Sept ’07 15.2% 32.0% 21.5% 14.7% 14.2%


U.S. new unemployment insurance claims increased 6.6% last week and averaged 491K over the last four weeks. The four-week average was not too much greater than the average during the previous four weeks to October 11th of 485K, but the 516K of new jobless claims in the week to November 8th suggests that November as a whole will see a large jump. New claims made a big rise between the four weeks to September 13 (446K per week) and the four weeks to October 11th (485K) and earlier between the four weeks to July 19th (382K) and the four weeks to August 16th (446K). The pace of deterioration has progressed in fits and starts and seems to be undergoing another quantum increase this month. When this gauge of layoffs rises sharply, an immediate hit is felt in private consumption especially since households will not be predisposed to depleting wealth in light of deep declines in the price of houses and financial asset portfolios. On the contrary, the savings rate — income not spent on immediate consumption — was only 1.3% in 3Q08. The historically normal savings rate had generally hovered between 6% and 8% in the final quarter of the 20th century. A sudden reversion to such a level, super-imposed over lower disposable incomes as unemployment rises, would be catastrophic. Let’s hope that any upward adjustment proceeds very gradually, as incentives are now in place for households to attempt to boost savings.



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