Be careful — real export growth looks to have slowed
Unless your family is in the wheat or beans business (wheat and soybeans exports have more than doubled when q1 08 is compared to q1 07; total food and feed exports are up 50% y/y), there actually wasn’t a lot to like in this month’s trade release.
Yes, the headline deficit fell relative to February, but February looks to have been a blip. The rolling 3m deficit has been stable at around $59.5b since December. And much of the fall in the deficit came from a big fall in the volume of imported petroleum. Petrol imports (in volume terms) were running ahead of last year’s pace in January and February. March brought the year to date total down below last year’s total, as the volume of imported crude was about 15% lower than the volume of imported crude last March. The fall in volume was large enough to offset a rise in price. The price of imported crude jumped from $84.76 to $89.85, but the seasonally adjusted US petrol import bill still fell by $2.2b, from $37.4b to $35.2b.
The real problem though was on the export side. Export growth looks to be slowing. The headline nominal growth numbers look good. Y/y non-petrol goods exports are up by a healthy 14.8% — far more than the 3.3% growth in nominal non-petroleum imports. But if the rise in agricultural exports and exports of industrial supplies (petrol, chemicals, metals) is stripped out, export growth was only up 5.2% 8.8% in nominal terms (oops; my bad).
Slower growth among those exports whose price hasn’t obviously increased is a warning sign.
A plot of real goods exports and imports shows a small monthly fall in exports in March.*
The data bounces around a lot, but it certainly seems that the pace of growth in real US goods exports is slowing. March real goods exports fell back below their level last June (see Exhibit 10). The usually reliable FT missed this part of the story, opting to highlight ongoing growth in nominal exports (”second-highest monthly” total in history despite the down tick from February) rather than the not-so-strong real growth.
Dollar depreciation helps, but a slowing world economy hurts. Countries that are spending more on oil may have a bit less to spend on other goods. Plus, in some sectors the US may be hitting capacity constraints. Boeing is a case in point: it needs to get its 787 assembly line sorted out …
The improvement in the nominal trade balance – plotted on a rolling 12m basis* – also has stalled.
It isn’t hard to see why: oil
And there is more bad news in the pipeline. Project out $89 a barrel oil for the remainder of the year and the oil balance deteriorates by over $100 billion in 2008. Project out $110 a barrel oil and the oil balance deteriorates by over $200 billion in 2008. The average price of imported oil in q1 of 07 was only $52 a barrel; the average price for all of 2007 was only $64.27 a barrel. That calculation, by the way, assumes that the volume of petrol the US imports continues to fall slowly.
One other point:
The improvement in the US trade balance with China (the deficit was $2.2 billion smaller in q1 2008 than in q1 2007) comes far more from the fact that US imports from China have essentially stopped growing (up $1.3b) than from a rise in exports (up $3.5b). Nominal imports from China in q1 were up only 1.8%; and nominal imports from Asia were up only 1.6%. Imports from Asia actually are growing at a slower nominal clip than imports from Canada or Europe. I am not sure if that reflects “J-curve effects” (flat volumes and rising prices lead to higher nominal imports are an exchange rate move) or petroleum and gas imports. The US obviously imports energy from Canada, and I think it also now imports some refined gasoline from Europe. Energy experts please correct me if I am wrong!
*Thanks to Arpana Pandey of the CFR for help with the graphs
UPDATE: There is nothing like a bit of attention from the big blogs to inspire a bit of additional work. Y/y real goods exports are up 9.5% — while y/y real goods imports (non-petrol) are down 0.8%. And the y/y growth in real goods exports is fairly broad-based. Ag export volumes are up 13.4% and real exports of industrial supplies are up 13.1%, but volumes for everything else are up 8.2% as well. The trouble is with the quarterly pattern of growth, which suggests some deceleration in export growth.
q1 08 real goods exports are 0.8% higher than q4 07 real goods exports (an annualized growth rate of 3.3%) and q4 07 real goods exporters were 0.6% higher than q3 real goods exports. the q3 over q2 growth rate — 5.6% — and the q2 over q1 growth rate — 2.1% — were much higher. Basically the strong y/y growth reflects strong growth in the middle of 07 rather than strong ongoing export growth.
Non-petrol real goods imports were down 1.9% in q1 08 (v q4 07) — which can be compared to a 1.7% quarterly fall in q4 07, 2.3% quarterly rise in q3 and 5% quarterly rise in q2.
Finally, i should note that I initially miscalculated y/y nominal growth in non-ag, non-industrial supply exports. The right y/y growth rate is 8.8%, not 5.2%. My apologies.
vorpal Says:
Brad, I think you know that I like the post. I think, the import numbers from Europe are tricky to compare with China because the Euro floats.
then again, if we import energy from Europe, it will be from Norway and Russia, 2 non-Euro countries. Norway’s exports are in decline, because oil is in decline there. Russia’s production has held steady, so a deterioration in our deficit with them is no surprise.
France is the real surprise. Compare 2007 and 2008 there.
bsetser Says:
imported petrol (if that story is right) would tend to show up more in the Dutch data than the french data I think and there is a roughly 20% rise in US imports from the Netherlands. The US tho does import aircraft (A320s .. ) from France and Germany and I think aircraft engines from France. The close to 10% y/y rise in US imports from Germany tho is hard to explain in any way other than a price effect due to swings in the euros. A couple of my currency trading friends wouldn’t consider buying any car not made in Germany …
Judy Yeo Says:
Actually saw a summary and commentary on this post on Yves Smith’s site before hopping over! Importing from Russia, depending on how much of a show the most recent airing of nuclear capabilities by the Russian military was (instead of any latent real aggression), brings to mind the disputes various former eastern bloc countries have been having with Gazprom, perhaps they are just nostalgic for some cold war era cold…
Judy Yeo Says:
Brad
perhaps one phrase captures your friends’ ideal: Vorsprung durch deutsche teknik
haha!
hey, have had to admire lamborghinis and ferraris from afar for ages!
Guest Says:
We’ve hit the iceberg, and the hull has been breached, now we’re just waiting for the compartments to fill before the ship sinks. Remember it took over three hours before the Titanic was finished.
The petroleum deficit looks like the Blob.
FG Says:
http://www.bloomberg.com/apps/news?pid=20601068&sid=awYf0_2adbDQ&refer=economy
“On the one hand, we need to boost consumption to adjust the economic growth structure, but on the other hand we also need to prevent excessive demand from fueling inflation,” Zhou said. “We need to balance those targets so that more savings are spent, while the spending doesn’t add too much pressure for inflation.”
The household savings rate needs to fall, Zhou said. >>
How do you manage?:
- grow consumer spendings
- fight inflation
- lower trade surplus
Let your currency appreciate? Or is it just talk?
bsetser Says:
rmb appreciation would be the obvious way to allow more consumer spending w/o stoking inflation. on the other hand, rmb appreciation has completely stopped (v the $) over the past month, tho the $’s rebound v a few other currencies has helped a bit … but that is really a topic for another post.
normansdog Says:
I live in Germany and work in automation so it is interesting to read the comments about fx traders and BWW’s (or probably Porches).
The US closed a great deal of its high-tec manufacturing industry (machine tool) during the period when the Euro was very weak, much to the benefit of Germany and Japan. These are industries that simply can not be re-started at the drop of a hat because the exchange rate is favourable, you just can’t conjure the skilled people out of thin air. Germany and Japan will not allow US companies to get back into the mechanical engineering business in the way that they were before. To what extent the US lost business in other high tec areas such as semiconductor I don’t know, but I would bet that it was fairly substantial.
Richard Kline Says:
Brad, I’ve been waiting for months for someone to break out these numbers as they are among the most meaningful trend data points for assessing where and how things will bounce with housing and dollar movements. I eyeballed the first post yesterday, but the added detail and correction today sharpen the picture: As you say, the 08 decline is very noteworthy. I greatly appeciate your leg work on this.
Laurent GUERBY Says:
(off-topic) Brad, while looking at the latest Fed Z1 report I noticed (page 82) that monetary authority (ie Fed) holdings of foreign currency jumped from 22 to 47 billions after being stable around 22 billions for the past five years.
Do you know what it means? Is the Fed defending the dollar or preparing to do so?
Thanks!
Anonymous Says:
re: "you just can’t conjure the skilled people out of thin air"
"…The immigration authorities flatly rejected Detecon’s first application for permission to hire the Mexican national… It took another three-month marathon of negotiations before Escalante-Mendieta was finally approved… But Escalante-Mendieta, for his part, could easily have lived with rejection. "Then I would simply have gone someplace else," he says. After graduation, he says, he received "four lucrative offers from different countries." The Detecon story is not unusual. Ironically… the country is on the verge of spoiling its own future by making it difficult for German companies to hire foreign nationals… political parties are determined to satisfy the growing demand for highly skilled specialists mainly from a shrinking domestic labor supply…" http://www.spiegel.de/international/business/0,1518,502786,00.html
"…In Germany, according to a report published by consultancy McKinsey, those earning between 70 and 150 per cent of the average income… will make up less than half the population by 2020, against 54 per cent today. Only eight years ago, 62 per cent of Germans were in the middle-class bracket, according to a second study…" http://www.guardian.co.uk/world/2008/may/11/spain.france
Guest Says:
A long goodbye to Boeing and to Airbus:
China unveils new jumbo jet company: report
May 11 03:18 AM US/Eastern
China unveiled its own jumbo jet maker in Shanghai on Sunday, state press reported, in a move that could eventually rival Airbus and Boeing.
The new company, Commercial Aircraft Corporation of China (CACC), will be responsible for researching, developing, manufacturing and marketing a made-in-China large passenger aircraft, Xinhua news agency said.
China announced early last year that it planned to develop a 150-seat passenger aircraft, which could eventually compete against planes made by Boeing and Airbus, the world’s two dominant commercial jet makers
Anonymous Says:
I find it odd that China is so umimaginative re investment abroad, esp. in the USA. It could easily take a 4-4.5% stake in the 100 largest US companies and do so via some captive bank in Switzerland or the Caymans without any fuss. Such a portfolio surely would outperform, in time, any equivalent investment in US Treasuries. And also give it far more leverage in a crisis. And it could do the same in Europe and elsewhere. What’s stopping it?
bsetser Says:
Anonymous — there would be a lot of fuss, and until recently, China’s leaders were quite conservative with their funds, as they worried about big capital outflows. Setting up the institutions to manage that kind of portfolio takes time. But my sense is that a modest shift in that direction is underway.
Laurent — I suspect that the ECB is borrowing $ from the fed to lend to European banks, and as it does so through swap lines, it would be posting euros as collateral with the fed. That at least would be my guess.
Laurent GUERBY Says:
Page 23 of Z1 there was +99 billions of "misc asset" (about 100 times the historical average) and +35 billions in "other liability".
Unfortunately I don’t know where to find an equivalent of Z1 on eurozone.
Anonymous Says:
"What’s stopping it?" - its massive, short term commodity needs?
"…Copper may have further to increase. In inflation-adjusted terms, the price has not yet reached a record, according to Barclays. "…Adjusted for inflation, the metal is trading close to levels last seen a century ago, when the U.S. economy was expanding and the nation was being wired for electricity. China, which is making a similar transformation, is building power stations and transmission lines that are exacerbating deficits in metals supply. As much as 80 percent of China’s grid investment is spent on copper… "There just hasn’t been enough planning to accommodate the growth of Asia’s economies,"…" http://www.washingtonpost.com/wp-dyn/content/article/2008/05/10/AR2008051000151.html
bsetser Says:
China is still running a trade surplus, so it can pay for its commodity imports out of current export earnings, unlike some other countries.
RebelEconomist Says:
Laurent,
I believe that Brad is correct about the effect of swap lines on the Fed’s holdings of foreign currency assets. Also, don’t forget the swap line with the Swiss now worth up to $12mn, so even if you find a eurozone equivalent of Z1, it will not match exactly.
don Says:
Brad:
The drop in the non-petroleum deficit makes me wonder: How big an effect will this have on ROW and when will it happen. I think Germany may be a lead indicator. The first casualty in a slowdown would probably be capital goods and Germany may be hardest hit by such a development. On the other hand, Russia is growing from oil exports, and they are a natural big market for Germany. The net effect of oil price rise must be to exacerbate the current deficiency in aggregate global demand, though, which should impact big exporters first.