The New York Times – in a big front page story on Monday– reported that the US trade deficit is about to head down.
The story presumably had been in the works for some time. It is filled with quotes from distinguished economists indicating how the US slowdown combined with strong growth elsewhere in the world – especially in conjunction with the dollar’s fall – is set to bring the US trade deficit down.
Their basic argument makes a great deal of sense. Most of the conditions for an adjustment are in place. If I had been told a year ago that US growth would slow relative to global growth and the dollar would fall to around 1.35 v the euro, I too would have expected an improvement in the trade deficit.
There is just one small problem: the q1 data hasn’t really been consistent with the “adjustment that will bring the US deficit down is about to start” thesis.
US export growth has clearly slowed. Y/y growth is now around 9%, well below its peak at 16% last fall. Haver's data on the 3m and 6m growth rates in real exports show an even sharper slowdown.
And in March non-oil imports jumped up. They are now growing at a y/y pace of around 6%. If those export and non-oil growth rates are sustained – and if oil stays at its March price of $52 a barrel – the US trade deficit would fall, but only by a tiny amount. If non-oil imports grow by 6% (y/y) and if oil is stable, any rate of export growth above 8.5% would bring the deficit down. 9% barely makes the cut.
Unfortunately, the US oil import bill is likely to rise a bit.