Four points on the US May trade data
1. Net petroleum imports fell by $1.6b. Petroluem exports rose by 0.96b while imports FELL by $0.66b in dollar terms. The fall in imports was a surprise. Oil prices rose by 9.7% or so. But import volumes were down by over 10% from April (and 14% lower than their 2007 average). The good news is that the US is importing significantly less petrol than in the past. The bad news is that the price of imported petrol isn’t going to stay at $106 a barrel.
2. The non-petroleum goods balance actually deteriorated slightly. Relative to exports, non-petroleum goods imports were up $1.8b, and non-petroleum goods exports were down $0.4b. The y/y rise in non-oil imports in May (6.9%) is higher than the y/y rise in the January through May data (4.5%), which likely reflects higher non-oil import prices more than anything else.
3. Y/y real goods exports were up close to 10% (9.4%) in May. Real imports were up less than 1% (0.8%). The slowdown in real export growth a few months back hasn’t been confirmed in the recent data. Real exports continue to do well.
4. The US trade deficit with China is flat so far this yea: $96.0b v $96.3b. Imports from China are only up 4.4% so far this year — a pace consistent with the overall increase in non-oil imports. The combination of RMB appreciation v the dollar, rising inflation in China, rising transportation costs and a slowing US economy is having an impact. US exports to China are up $5b (comparing the first five months of 2008 to the first five months of 2007); US imports from China are only up $5.4b. The slowdown in the pace of import growth has contributed far more to the stabilization of the trade deficit than the (strong 19.7%) percentage increase in exports. That US still imports about four times as much from China as it exports.
UPDATE: Spencer provides a nice summary of real export and import trends over at Angry Bear.
Dave Chiang Says:
That US still imports about four times as much from China as it exports. And 80% of Chinese exports to the US are by American based multi-national corporations that have mostly outsourced their production. For the past two decades, both the Clinton and Bush administrations have strongly encouraged US corporations by providing tax incentives to outsource manufacturing overseas to maximize short-term profits for Wall Street finance capital. For instance, almost 80% of the Boeing 787 has been outsourced overseas. Yet the Chinese are now scapegoated for US Economic problems by Hank Paulson and Ben Bernanke, both of whom have labeled the Chinese in slanderous language as “dirty cheaters” and “global leaches” in Congressional testimony. The rising RMB appreciation has damaged Chinese export competitiveness especially in labor intensive products to third-party markets across the Middle East and Europe. US Economics imbalances are not the fault of the Chinese, but from Washington Consensus policy [EDITED BY BSETSER HERE].
anonymous Says:
bsetser - Is there a way to graph the trade deficit if oil had not had its momentum move this spring or is this a bit on the dificult side because of th average barrel imported moving in the manner it does?
don Says:
Brad: “Relative to exports, non-petroleum goods imports were up $1.8b, and non-petroleum goods imports were down $0.4b.” ??
Brad: “The US trade deficit with China is flat so far this yea(r): $96.0b v $96.3b. Imports from China are only up 4.4% so far this year — a pace consistent with the overall increase in non-oil imports.”
I think this last comparision should be made in real terms, because a much greater share of the increase in imports from countries other than China is caused by the price increase, isn’t it?
bsetser Says:
don — possibly (on your last question). Though taking out petroleum helps on this front. And there have been price increases on imports from China.
Anonymous — it isn’t that hard, but it isn’t something that i have done. what is hard is the interactive effects — i.e. if oil was lower, the us might be importing more non-oil goods.
p.s. I typed imports when i meant exports in point 2; I corrected the post.
Movie Guy Says:
Brad Setser - “1. Net petroleum imports fell by $1.6b. Petroluem exports rose by 0.96b while imports FELL by $0.66b in dollar terms. The fall in imports was a surprise. Oil prices rose by 9.7% or so. But import volumes were down by over 10% from April (and 14% lower than their 2007 average). The good news is that the US is importing significantly less petrol than in the past. The bad news is that the price of imported petrol isn’t going to stay at $106 a barrel.”
First, it is not a surprise that U.S. crude oil imports are down. Certainly not a surprise for those tracking vehicle and fleet usage rates. The casual observer should have picked it up.
Second, it not good news that the U.S. is importing less foreign crude oil when, in fact at this juncture, this simply indicates that the U.S. economy is shrinking whereby commodity price pressures are taking their toll. If the decline was caused by jumps in alternate fuels and improvements in CAFE, that would be one thing, but that isn’t why crude oil imports are down.
Commodity prices are up substantially and the U.S. economy is shrinking.
—
Howard Richman Says:
I’m guessing that the US trade deficit with China will go up later this year when Americans spend their stimulus package tax rebates at Walmart on made-in-China goods and when businesses buy made-in-China computers to take advantage of the stimulus package’s investment expensing for 2008.
Howard Richman
http://www.trade-wars.blogspot.com
bsetser Says:
movie guy — the fall in nominal oil imports was a surprise. the scale of the fall in imported volumes was also a surprise, tho the fact that volumes are falling is no surprise. bottom line:most analysts expected the $10 a barrel rise in price in a month to overwhelm the fall in volume.
FTX Says:
Hi Brad, long time no post (objected to registering on RGE) and still much appreciate your work.
The fall in net imports of crude + petroleum products has been pretty dramatic this year in volume terms, and today’s numbers showed this is continuing.
One aspect worth noting (and I realise that this is more a strategic as opposed to an economic consideration) is the changing concentration of those net imports. The EIA haven’t put up May numbers yet, but in April net petroleum imports were down 1,085,000 bpd vs the same month last year. However, if you split this you find OPEC imports were up 254,000 bpd and non-OPEC imports were down 1,339,000 bpd.
Increasingly therefore, even though net imports are declining, OPEC nations are gaining a far greater share of petroleum imports, and former stalwarts such as Mexico, the U.K. and Norway are playing an ever reducing role as their oil production declines.
Rien Huizer Says:
Don,
DC: politicians need to posture (preferably exotic foreigners) to partially satisfy public desire for action. Verbal, inconsequential abuse of people without specific authority is the simplest form. Like the POBC head who wants to learn from “US mistakes” . Be glad it is only words..
Don, the real terms issue is indeed interesting. However probably much US of imports is invoiced (and priced, more importantly) in USD. How much can the Chinese manufacturers squeeze their production cost. On top of that, container rates have risen considerably. No so long ago, empty containers (made in China at about (2002) USD 2-3000 each) were often simply left in Long Beach. Now they are shipped back with bagged (ready to distribute) bulk goods. That reduces shipping cost (over the return voyage) a little, but not for long, with these fuel prices. So I guess we should give the volume numbers a little time.
bsetser Says:
DC — I probably shouldn’t have ignored your initial points, given how outlandish they are. I would be very surprised if Paulson (a sinophile) or Bernanke (a diplomat) used the language you identified. And by far the biggest incentive for foreign manufacturers to locate production in China has been the undervalued RMB. US firms respond to incentives. I’ll grant that the current US tax law creates some perverse incentives, but I would certainly expect that you too would recognize that holding the rMB down encourages production in China.
And I find it a bit hard to take complaints about how China’s exports are getting squeezed when the latest quarterly data shows a positive contribution from net exports to Chinese GDP growth and exports are up 18% y/y. Moreover, the biggest impediment to more job creation in china is likely the cheap cost of capital (negative real rates) and resulting substitution of capital for labor. And that stems directly from China’s policy of holding the exchange rate down — which rather clearly does a better job of supporting the export sector than creating jobs. I would suspect that Chinese job growth would go up if China spent the funds now used to support the export sector on a domestic public works program.
Free_market Says:
Only way to make pegged nations to float the currency is by adding reserves of physical yuan. Inflation in china will skyrocket since most transactions are cash and force them to revalue yuan or kill the economy
Movie Guy Says:
Brad Setser - “movie guy — the fall in nominal oil imports was a surprise. the scale of the fall in imported volumes was also a surprise, tho the fact that volumes are falling is no surprise. bottom line:most analysts expected the $10 a barrel rise in price in a month to overwhelm the fall in volume.”
It may have a surprise to you and some others, but it shouldn’t have been. It wasn’t a surprise to the Baker Institute back on 11 June 2008 when the following was stated in Congressional testimony:
Testimony of Amy Myers Jaffe
Baker Institute, Rice University
to the Select Committee on Energy Independence
and Global Warming, U.S. House of Representatives
June 11, 2008
http://www.bakerinstitute.org/publications/JAFFECongressionalTestimony11jun08-final.pdf
Excerpt:
“It has become a standard mantra in the oil market that higher oil prices are being driven primarily by the ongoing rise in oil demand and that this rise in demand is defying the normal impact of rising prices given the strength of developing economies like China and India. However, in reality, demand has responded strongly to high prices and is currently falling significantly. April U.S. oil demand is running 3.5 percent below a year ago (first quarter was down 4.3 percent) while EU-15 demand has seen a 1.1 percent drop against the spring of 2007. Oil demand in Pacific industrialized nations (Japan, South Korea, Taiwan, Australia and New Zealand) is also down over 4 percent. Overall, while Chinese demand remains healthy with stockpiling to prevent shortages ahead of the Olympics, global oil demand is still faltering, growing only by 0.4 percent so far this year or a small gain of 350,000 b/d (compared to the 2.5 million b/d gain predicted). The argument that Asian consumers are shielded against oil price impacts by generous government subsidies is losing water, given that India, Malaysia, Indonesia, Bangladesh and Sri Lanka have all been raising government-set domestic fuel prices. In China, demand for unregulated products –naphtha and fuel oil- fell 2 percent in the first quarter of 2008, a sign of what will come if China eases its other fuel subsidies after the Olympics.”
Maybe you should consult the Baker Institute so that you won’t be surprised next month. I’m confident that Jaffe and others will keep you straight.
Nothing about the data should have been a surprise to those paying close attention.
Movie Guy Says:
By May, the decline in U.S. demand was well underway and growing as overall petroleum products usage was seasonally down (for other products demand) absent the normal rise in transportation demand which did not occur for obvious reasons. It was already clear that U.S. consumers were tightening their belts…hard. At the same time, U.S. domestic crude oil production was climbing quickly. The end result was the 10.5% decline in imported crude.
People were staying close to home in May. They were in a state of shock by then. And all of this was observable in vehicular traffic counts across the nation.
By mid-May, you could roll through downtown Atlanta at 9 PM and not worry about traffic. Prior to that time, I would walk my muscle car trailer around Atlanta on I-285 headed north or south unless it was after 1 AM. I don’t have to go around Atlanta anymore. No need. The traffic is gone by 9 PM. So, I’m saving 20 minutes travel time as early as 9 PM. And some Atlanta car lovers along with their children have the opportunity to see ‘70 Olds 442 convertibles roll by them before they’re all sold to foreign buyers.
Threw that closer in for fun…
No, I wasn’t surprised Brad. I’m travelling the highways too much right now to not have noticed the remarkable decline in vehicle traffic other than the normal rushhour exodus. Beyond that, the traffic was simply not there in the Southeast (as an example).
Dave Chiang Says:
Brad,
Is it really so difficult for anyone to comprehend that when Hank Paulson says that his monetary policy advise is for the benefit of the Chinese people, it is actually for the exclusive benefit of Goldman Sachs and company. Does China need US style financial deregulation for a subprime fiasco? Paulson is on record accusing the Chinese of trade cheating by maintaining a fixed currency peg. Nothing could be further from the truth. EDITED HERE BY MODERATOR. The RMB revaluation has been a disaster for the labor intensive textile industries in Guangdong province; over 50% will shutdown production within a couple years. It is not China’s responsibility to bailout the rest of the world, especially since US government policy is exclusionary to Chinese foreign economic interests in Africa, the Middle East, and Latin America,
Dave Chiang Says:
In China, 200 million people still subsist in rural poverty with 15 million living in dire poverty. It is well known throughout poorer 3rd world nations that the most basic Human Right of obtaining food, water, and clothing is completely ignored by the US Treasury controlled IMF which has imposed structural reforms on numerous developing nations for the benefit of Western bankers while impoverishing billions of people. In Indonesia, under the Washington Consensus policy prescription, the IMF eliminated food and fuel subsidies for the poor touching off riots that has left thousands dead. EDITED HERE BY THE MODERATOR. Surely Brad, it represents a Human Rights tragedy to displace and further impoverish billions of people.
bsetser Says:
Movie Guy — funny thing is, I just reviewed a paper by jaffe (at her request). I stand by my comment tho. The baker institute argument is consistent with a 3-5% y/y decline in import volumes. It isn’t consistent with a 10% m/m fall (Which produces a 15% y/y decline … ). Clearly, I don’t drive frequently, so i don’t have your anecdotal evidence — but there existing data series didn’t suggest this kind of drop. Some drop yes, but not this kind of drop. Remember the consensus among analysts was that the trade deficit would rise b/c of a higher oil import bill.
DC — ummm, in order to keep the RMB down, China is bailing out the world, and in particular the deregulated financial institutions that you so dislike.
Rien Huizer Says:
Movie guy,
Intriguing stuff. One would expect those mythical speculators to fold and flee..
The US consumer could use a little oil frugality, but why would he do that now? Consumers act when it is too late.