US oil imports (in volume terms) may have plateaued, but has the US trade deficit peaked?
Jeremey Peters' New York Times article on the trade deficit says that there is no sign that the US demand for oil imports is slowing. The evidence: oil imports, in millions of barrels per day, are as high as they have been since October.
I disagree. The evidence that higher prices are restraining demand for imported oil – both by encouraging marginal supply in the US to come on line and reducing US demand – is pretty good. I like looking at the import volume series reported in exhibit 17 of the trade report. Those volumes grew by 7.3% in 2003 (v 2002), 5.7% in 2004, 1.7% in 2005 and are down 2% so far this year (v. the first five months of 2005).
Up until the recent surge in oil prices, oil imports were growing faster than overall US demand for oil. Not anymore.
I am not sure if this is more a demand response (less US demand for oil) or more a supply response (more domestic US production), but it seems like pretty clear evidence to me. My forecasts for the 2006 trade deficit now incorporate a baseline without any increase in demand for imported oil. I probably should work in a small fall.
Incidentally, Chinese demand for oil is up 15% y/y. Probably because new car sales have been growing like mad. It probably isn’t an accident that in the face of growing Chinese demand and limited growth in supply, higher prices have helped to push US demand down. That’s how markets work. They match demand and supply.
I also wanted to build on a couple of points that I made yesterday — points that put me outside the emerging consensus (see the various investment bank daily comments) that the non-oil trade deficit may have peaked. My worry: folks are extrapolating on the basis of recent trends on the non-oil import and export side that may not be sustained.
The following chart shows US non-oil imports. They basically have been flat since January. Interestingly, they also were flat in the first half of last year, then grew strongly in the second half. That supposedly was linked to a correction in electronics inventories, among other things.
I wouldn’t be surprised is something similar happens this year. Or at least I cannot rule it out. US import demand slowed before the US economy slowed in 2006. And it might pick up (slightly) even as the US economy slows. 12 months of zero growth in non-oil imports would be unusual – so long as overall demand growth remains positive.
And what of exports? I put them on a separate graph, because the difference in scale is such that the upward trend gets squashed a bit if exports are graphed on the same scale as non-oil imports. The scale for imports is $120b to $155b. The scale for exports is $90b to $120b.
There is a solid upward trend. I was slightly worried that export growth was flattening on the basis of the January to April data. But there was a nice jump up in May.
What accounts for very strong export growth since the end of 2003?
- The dollar’s depreciation against the euro in 2002 and 2003. The euro ended 2003 at 1.25 – and has generally fluctuated around that level since. That helps.
- Strong world growth.
- Strong growth in global demand for civil aircraft – combined with a recent run of success at Boeing. Indeed, civil aircraft is one area where global demand growth has been stronger than US demand growth. US airlines haven’t been placing big orders. Airlines in Asia and the Middle East have. Boeing competes against a European firm, so it benefits strongly from dollar depreciation. I don’t think it is an accident that airbus did quite well when the dollar/ euro was around 0.9, and Boeing is doing quite well with the dollar/ euro at 1.25 and change.
I still think there is a risk that the month over month growth in exports may slow over the course of the year. Or exports may fall below the trend line. Why?
- May may prove to be blip. The January-April flattening may be telling up something.
- A set of emerging economies with large and growing current account deficit financed by big capital inflows (Turkey, India) ran into a bit of trouble recently. I expect that Turkey’s economy will slow and its current account deficit (particularly excluding oil) will start to shrink. And India’s deficit may not expand at its current pace. Same with South Africa.
- Generally speaking, the emerging economies that don’t export oil may have to cut back on non-oil imports to pay their oil import bill. Borrowing may not be as easy as it was in the first half. And the oil exporters generally speaking don't buy American.
And Boeing. With some help from Mr. Bill, I learned it shipped 195 planes in the first half of the year. It expects to ship 200 in the second half. That is more than in 2005. But it doesn’t seem to provide the basis for a lot of growth over the first half of this year. Boeing seems to producing at capacity.
The big wildcard — two net oil exporters on the United States border. Canada and Mexico. Both do buy American. Continued strong demand from Mexico and Canada could help.
“Exporter confidence has declined further, according to EDC’s latest survey of Canadian companies… But what kept the overall TCI from falling even further is a big rise in companies’ faith in the domestic economy… overall figures also mask a significant increase in the disparity of responses concerning the export outlook… driven by the ongoing boom in Canada’s energy and mining sectors and the corresponding stresses being felt by manufacturers… The biggest declines were in consumer goods, agriculture, food, forestry and base and semi-manufacturing…” http://www.edc.ca/english/docs/ereports/commentary/publications_11357.htm
Semi-manufacturing?
China’s economic expansion accelerated to a 10.9% annual rate in the second quarter, a trend that could lead authorities to take further measures to cool growth.
Nanjing Automotive Group said it is joining hands with two U.S. investment funds to build MG cars at a new plant in Oklahoma.
Lex: Chinese inflation
Lex: Chinese interest rates
Politically Manipulated U.S. Government Statistics on the Economy
http://www.europac.net/externalframeset.asp?from=home&id=5467
In recent weeks, as the word “stagflation” has made a few appearances on the national media stage, many bullish skeptics, such as CNBC’s Steve Liesman, have downplayed the current “mini” stagflation with contrasts to the “real” variety of the 1970’s and early 1980’s. Such confidence however fails to recognize that we now measure economic activity and inflation with very different yardsticks than we did when Disco Duck topped the charts and Jimmy Carter wore sweaters. In reality, changes in the methodologies mean that the statistics bear as much resemblance as an 8-track to an iPod, and only serve to obscure the genuine threat we now face. In the 1970’s and early 1980’s, “core CPI” included housing prices, and the basket was neither altered to reflect substitutions (in which stuff that had gone up in price is replaced by stuff that did not), nor were prices hedonically adjusted (a 5% increase transformed into a 3% decrease based on a subjective assessment of quality improvement).
Similarly, changes have hit GDP assessments. For instance, 25 years ago GDP was calculated using a more honest deflator; business fixed investment expenditures were not hedonically adjusted ($5 billion spent on computers recorded as $50 billion, as computing power increased by a factor of 10 over the benchmark year), and phantom payments were not included (imputed income on owner-occupied housing counted as rents, or free checking accounts recorded as interest payments). In addition, comparisons using “core” inflation numbers, which was the case in Liesman’s example, leave out energy prices, which have been particularly effected by the current round of inflation, and food, which in my opinion is about to follow in energy’s footsteps.
In fact, as I write this commentary, crude oil prices are up almost three dollars per barrel today alone, hitting a new record high just shy of $78 dollars a barrel. In the last five years, crude oil prices have risen more than four-fold, with no end to the rally anywhere in sight. Over the years, the government has managed to “solve” economic problems merely by changing the way they are measured. By re-jiggering the manner in which CPI and GDP are calculated, the government misrepresents the true health of the economy, making it easier for incumbents to be re-elected.
Despite the rosy numbers, today the typical American family pays for groceries with a Visa card, utilities with a home equity loan, has a six-year loan on their SUV, has no savings, and has both parents working just to keep the family one-step ahead of its creditors. With all this supposed non-inflationary economic growth, why do Americans borrow to pay for everyday necessities which used to be easily financed from incomes, and why has a nation of savers been transformed into one of debtors? From the government’s perspective, all the misrepresentations are part of a giant confidence game that is meant to keep all the marks, most of them foreign, from wising up. A fiat-based monetary system only functions as long as confidence is maintained. The minute it’s lost, the whole scheme implodes. Since confidence is the only thing holding up the U.S. dollar, and by extension the entire U.S. economy, maintaining that confidence is the government’s highest priority. If elected officials and central bankers have to obfuscate a bit to do it, so be it.
- Peter Schiff
Why Neo-liberalism Globalization Isn’t a Win-Win Situation
by Stephen Roach, Chief Economist Morgan Stanley
” US policies encourage over-consumption and under-production in the global economy, resulting in a low saving rate and stagnating wages for middle-class workers. China’s policies focus on rapid over-production, a massive surplus of goods, a high savings rate, as well as wage inflation of about 12% per year. Internet outsourcing in US non-tradable service sectors to developing nations, like China, has further displaced middle-income laborers in wealthy countries. Globalization is no longer the “win-win situation” for all parties and will quickly lose support from those who do not benefit the increasingly unequal global distributions of wealth. ”
- Stephen Roach
Boeing Sees Limited Gain From Airbus Woes as Plants Already Fully Booked Boeing Co., the world’s second- largest maker of commercial planes, says delivery delays at Airbus SAS are unlikely to increase sales immediately because its factories already are booked for the next several years.
If the US can do more to alleviate Mexico’s poverty, it might help increase US exports to that country, and reduce tensions in locations that are a bit closer to home.
“…1) A household is considered to be food-based poor if its net per capita income is less than the amount of money necessary to cover basic food expenses. This category included 20 percent of Mexico’s population in 2002. (2) A household is in capabilities poverty if its members cannot afford to cover their basic expenses of food, health and education. This applies to 26.5 percent of the population. (3) A household is in assets-based poverty if its members cannot cover expenses of food, health, education, clothing, home and public transportation. About half of Mexico’s population fits into this category…” http://www.dallasfed.org/research/swe/2006/swe0601c.html
Unfortunately, perhaps along with China, not sure how sustainable Russia’s policies may be in the long run (not that the following is a problem unique to Russia, although it may also add to upward pressures on world energy prices, assuming there is some truth in what he is saying):
“…A major source of inflation in Russia is corruption… every new law or regulation is designed to provide a source of illicit income… But there is the rub. You can’t seriously expect… bureaucrats and politicians to initiate reforms that will put them out of business…” http://www.moscowtimes.ru/stories/2006/07/11/008.html
No idea if, or how this might affect data that’s important to you Brad – or the ’statistics industry’ overall in a data dependent world.
“The U.S. House of Representatives approved a bill Wednesday… that would alter the regulatory landscape for all credit-rating agencies… If the bill also passes the Senate, the Securities and Exchange Commission’s ability to designate credit rating agencies as NRSROs, or “nationally recognized rating agencies,” will be abolished. Instead, a credit rating company with three years of experience that meets certain standards would be allowed to register with the SEC as a “statistical ratings organization.” Of the more than 130 credit-rating agencies… Moody’s and S&P control 80 percent of the market…” http://www.cfo.com/article.cfm/7161566?f=blog
Moody’s (MCO) shareholders don’t seem to be terribly concerned. The stock traded down a bit more than the DJIA today, although MCO is now closer to it’s one year low than its high.
Brad,
Perhaps this original source information will be of value in the future. This is the only production, delivery, and forecast data on Boeing that I include in communications.
MG
Boeing Commercial Airplane Orders and Deliveries
Current Year Deliveries by Airframe and Airline Customer
Net Orders by Airframe and Airline Customer
Annual Orders Summary by Year, Airframe, and Gross and Net Orders
Orders and Deliveries Search Tool – User Defined Requirements
Orders and Deliveries Search Tool – Time Period Reports
Boeing’s Market Outlook and Analysis
Current Market Outlook – Main Link
Market Value by Region thru Year 2025
Comparison of New Deliveries to Market Value thru Year 2025
World Air Cargo Forecast
Commercial Air Cargo Yield Trends
Commercial Freighter Fleet
Commercial Freighter Fleet Development thru Year 2025
Boeing’s Randy Baseler Journal
Boeing Commercial Airplanes – News Releases
Global Commercial Airplanes Forecast
Boeing Global Market Analysis thru Year 2025; and here
Boeing believes that “over the next 20 years air travel will grow an average of 4.9% a year, driven by an annual GDP growth rate of 3.1% – both up slightly from last year’s forecast. Air cargo will grow at an average of 6.1% per year.” Boeing also projects that future commercial air travel will involve “more nonstop, point-to-point flights, and more frequencies”.
Boeing believes that we will “see continued strong commercial airplane demand in the forecast period between now and 2025 – a $2.6 trillion market for new aircraft. That’s an increase of $500 billion over last year’s forecast. And our forecast is up by about 1,500, to a projected 27,200 new airplanes over the next 20 years – including passenger airplanes and freighters.”
Year 2026 current worldwide commercial airplane fleet – 17,330 airframes
Year 2025 projected additional global service sales – 17,630 airframes
Year 2025 projected airframe replacements – 9,580 airframes
Year 2025 projected total global sales – 27,210 airframes
Year 2025 projected retained fleet airframes – 8,760 airframes
Year 2025 projected total airframes – 35,950 airframes
“The freighter fleet will nearly double over the next 20 years, from 1,766 to 3,456 airplanes. Freighters as a share of the total airplane fleet will fall from 11% to 10%, owing to an increase in the size of the average freighter. Taking 1,260 retirements into account, 2,950 airplanes will be added to the freighter fleet by 2023.”
Projected future Boeing commercial airplane sales :
Single-aisle airframes (737) – 61% of new deliveries
Twin-aisle airframes (767, 777, 787) – 23% of new deliveries; 45% of new deliveries dollar value
The Asia-Pacific market will represent 36% of the value of the commercial airplanes market.
“Over the next 20 years, world air cargo will grow at 6.2% per year. Air freight will grow more rapidly than mail, averaging annual growth of 6.3% through 2023. Mail RTKs will show steady growth of 2.9% during the same period. Meanwhile, world traffic will more than triple during the next 20 years, increasing from 156.5 billion RTKs in 2003 to more than 518.7 billion RTKs in 2023.”
“The international market will outpace domestic growth, exceeding 83.7% of total RTKs by year-end 2023. U.S. carrier share of the world market, currently assessed at 29.8%, will decline to 23.4% by 2023. The greatest air freight market growth is expected in those markets linked to Asia.”
One correction:
Year 2026 current worldwide commercial airplane fleet – 17,330 airframes
Should read
Year 2006
So which size should i think of with freight? 777 or A380
Brad, RE DOE inventory nos. on Wednesday. They were quite a big draw of -6 mio bbls of crude and imports down down as well. But these numbers are really hard to reconcile.
Gasoline demand is up 1.7% per year at 9.56 mbpd
Distillate demand (diesel) is up 3.3% per year at 4.12 mbpd
Total demand is down -1.6% to 20.82 mbpd
But gasoline + distillate demand = 13.68 mbpd
While Total demand = 20.82 mbpd or a 7.14 mbpd difference?
Without any sort of breakdown of where that demand destruction is coming from how does one evaluate whether it is real, a plug, temporary, price sensitive, structural change, or what?
I would say that manufacturing may be using less crude in its processes, but the strong gasoline & diesel demand is showing that transport fuels are still strong on the back of an expanding economy and lack of alternatives, even if natural gas, hydro electric and other alternatives may be taking some demand away on the stationary fuel side?
I just do not feel comfortable with the overall numbers to draw conclusions from them?
Chinese Inflation Transmission, the end of the Mercantilist Model?
http://www.xanga.com/russwinter