Brad Setser

Follow the Money

Cross border flows, with a bit of macroeconomics

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The US is exporting its recession (by not importing)

by Brad Setser
April 9, 2009

The trade deficit continued to shrink in February, even though oil prices stopped falling.

Chalk that up to a huge slide in non-oil imports.

Non-oil goods imports were down 25% y/y. Automobile imports are now down over 50% y/y. Imports from Japan were down close to 50% y/y — a fall that matches the fall in Japan’s exports. Imports from both the eurozone and the pacific rim were down 30% y/y (not seasonally adjusted, and that may be a factor).

Non-oil exports were a bit higher in February than in January, a very positive surprise. It wasn’t the due to Boeing either. Civil aircraft exports were actually down a bit in February v January. Non-oil exports though are still down 18% y/y.

Alas, I tend to think the improvement in the February data will be hard to sustain, given the bleak global outlook and the lagged impact of the dollar’s rebound from its 2007/ early 2008 lows. I agree with Joshua Shapiro, who noted that the fundamentals still point to further falls in exports:

“Given what is happening in the rest of the world, it is highly unlikely that the February result represents the start of a turnaround in demand for U.S. goods abroad,” Joshua Shapiro, chief United States economist at MFR, wrote in a note.

A plot showing real (non-oil) goods imports and exports clearly shows a small bounce in exports in February.

But the main story is that on a y/y basis, both real imports and exports are way down.

I have a longer time series more readily available showing the change in nominal exports (both goods and services). And the smoothed data (which looks at the y/y change in a three month moving average of non-oil exports and imports to limit the impact of month-to-month noise) shows a large, ongoing slide in both exports and imports.

I don’t see any green shoots in the data. Not yet. Exports and imports are both falling at a rapid pace. And — as Calculated Risks’ charts make clear — the fall in both exports and imports is far sharper during this recession than during the 2001 recession.

One last point: Average US oil imports in the first two months of the year were around $15 billion a month. That is down almost $20 billion from this time last year. And it is down over $30 billion from the peak of the summer. The fall in oil prices — more than anything else — explains the improvement in the trade balance. Moreover, US petrol import volumes are down 6% y/y, even with lower prices. That suggests that American behavior has changed. Or perhaps it just suggests that the fall in economic activity trumped any response to lower prices.


  • Posted by fatbrick

    The better economic data in Feb is resulted from the inventory rebuilding. This should lead to a a better result in Mar or even Apr.

    Also, the shrinking deficit of U.S. in Feb is not surprising. Remember that China’s surplus was only $4 billion in Feb. Due to the lag, there is not much new information here. Let’s see what Mar data tell us.

  • Posted by Thomas

    Is there any reason why you only chart “goods” and exclude “services”? The overall US deficit is quite a bit smaller when the services surplus is included, and the yoy drop is also a bit smaller.

  • Posted by bsetser

    the last chart — with nominal values — is goods and services. I should have specified that. the main reason I tend to exclude services is that i wanted to use the “real” data to abstract away from the impact of price changes (given the swings in commodity prices), and the only monthly “real” data series are for goods. the monthly bilateral data is also for goods only.

    basically, if there isn’t as much detail in the monthly data on services as for goods. I also suspect that more of the monthly services data is estimated, so it may tell us less at times of change than the goods data — which comes from the customs service directly.

  • Posted by don

    We’ll see if these trends continue as foreign economies suffer. In particular, will China keep its peg, or try to devalue?

  • Posted by bsetser

    the fx market is no longer expecting a deval from china … for what it is worth.

  • Posted by MakeMeTreasurySecretary

    Rather than think of the data as suggesting “The US is exporting its recession”, how about “The US gives other countries a chance for the good life”, or “The prospects for the dollar have dramatically improved”.

    By the way, nobody has ever accused me of being an optimist…

  • Posted by DJC

    “Alas, led the US Treasury, most government bailouts and stimulus programs thus far are formulated on a model of giving taxpayer money to corporate employers so they can further cut employment and further push down wages to further weaken consumer demand. China appears to be the only exception of this trend since the reins of leadership were passed to Hu Jintao and Wen Jaibao in 2002, albeit there are still vocal forces in Chinese policy debates insisting on continuing to follow faulty US models of growth through deregulated markets, and to depend on export to achieve prosperity. Hopefully, facts will now silent these wrongheaded vocal voices and allow China to finally move on a path of balanced domestic development.”

    – Economist Henry CK Liu

  • Posted by Rien Huizer

    Although the trend does not surprise (and Feb is a short month) it may be a bit too much or partially incidental. If this is mainly cars, electronics and things to do with housing (tiles, bathroom, furniture, home electrical supplies, networks etc) it tracks the domestic credit crunch in the US. Restricted availability in trde credit may also hve been a factor although that should not affect Japan. It says nothing about changes in US exporting prowess though. US firms do not produce much that competes with the NE Asians and of course these statistics include Japanese firms manufacturing in the US. Whatever cars not sold in the US get exported, until it is time to close a factory.

    A puzzle to me is the balance in industrial supplies. Would that be affected by commodity prices and subject to leads and lags?

    One explanation for Japan’s extraordinarily poor recent export performance (contributing to a large fall in GDP) could be that Japanese exports are highly concentrated in the hands of less than twenty major industrial firms and trading companies, and they are used to do their sums in USD. A sudden JPY rally does not change that in the short term. Non-price factors in the marketing mix may allow many Japanese firms to pas on increased costs once domestic demand for cars and electronics begins to revive, or when the next wave of product feature changes is unleashed.

    Hence these figures do not say much about Japan’s strength yet either. Pne would expect to see signs of Japanese market share loss to Korea, but I cannot see this

  • Posted by purple

    Japan’s exports to China rose in the most recent data. I imagine the US export increase is related to that, directly or indirectly. China’s massive stimulus will help a lot for the next few years, though it ‘solves’ little in terms of the underlying issues – they will re-emerge, as Paulson himself noted.

  • Posted by DJC

    China’s trade surplus jumps to 18.56 bln dlrs in March: state media

    BEIJING, April 10 (AFP) Apr 10, 2009
    China’s trade surplus jumped 41.2 percent year-on-year in March to 18.56 billion dollars, the official Xinhua news agency reported on Friday.

    The figure came despite a 17.1 percent drop in China’s vital exports, which marked the fifth straight monthly fall, as imports slumped by 25.1 percent, it said.

    China has seen its exports take a beating due to the global financial crisis, which has shrunk foreign demand for Chinese-made goods.

  • Posted by DJC

    Need for Restructuring Dysfunctional Terms of Trade

    To save the world from a prolonged depression, international trade needs to be restructured from its current destructive role of preempting domestic development towards a new constructive role of augmenting it. That the now nearly two-year-old crisis in financial markets has been created by excessive debt denominated in a fiat dollar whose issuer has for decades failed to live by prudent rules of fiscal and monetary discipline, while the solution to a debt-infested financial crisis is mistakenly deemed to be simply shifting massive private sector debt into public sector debt by spending future taxpayer money to save zombie financial institutions from bankruptcy. This approach of saving the decrepit institutions of free market capitalism rather than saving the severely injured global economy will only exacerbate and prolong the current financial crisis into a decade-long global economic depression.

    For all economies except that of the US whose fiat currency has the unfair and unearned advantage of being the dominant reserve currency for international trade, excessive national debt denominated in foreign fiat currency, either private or public, threatens the economic and political sovereignty of independent nations. When international trade is denominated in fiat dollars, the US essentially imposes a global tax on all trade around the world, whether or not the US is a direct participant in the transaction and whether or not the transaction takes place within US jurisdiction. Foreign investment denominated in dollars, direct or indirect, naturally goes only to projects than can earn dollars, and not to where the target nation needs most for domestic development.

    Breaking Free from Dollar Hegemony

    Dollar hegemony prevents all non-dollar economies from financing domestic development with sovereign credit denominated in their own currencies and forces them to rely on foreign capital denominated in dollars. Moreover, the exporting economies are in essence shipping real wealth created by low wages and environmental abuse to importing nations that have unearned sources for dollars.

  • Posted by jonathan

    Perhaps, as people suggest, we can blame the super fast news cycle but there seems to be an expectation, an irrational impatience even, that this crisis will pass swiftly, that it’s just another story of which we’ll soon grow tired. Things continue to get worse. Markedly so.

    I wonder how long companies can pay their debt service with this level of sales. If the numbers of foreclosed homes held in REO reserve is really as high as we hear, then some markets are fragile at best and, though they may be near their price bottoms – depending in part on how that REO is sold off – their building industries won’t be generating employment for a while.

    Here’s a simple anecdote to illustrate how spending has contracted. I have a connection to a company that provides easy to use websites for classrooms. They had the usual affiliate programs and classes were making $20 a month from it. Since January, no one has made enough to cover postage for a check.

  • Posted by Dave

    Brad, aren’t a large portion of US goods exports these days things that may not count as “oil” but are also not traditional finished goods? I’m specifically thinking of residual fuel oil and gold. Residual counts as a “product” but is actually garbage – we can’t burn high-sulfur fuel oil here, so we ship it to Singapore where it is put onto ships. If you take fuel oil, distillates, gold and other scrap products out of the trade figures, what do the exports look like?

  • Posted by PrahaPartizan

    Dave, I believe that most of the US refineries don’t produce that much residual fuel oil these days. Cracking technology now reduces most of those long chains into higher-value cuts. Further, the refineries in the US don’t even like to use high-sulfur crudes because they contaminate the entire distillation process and make it difficult to produce sweet cuts. I would agree with you that much of US export product is in alternative products, but I’m thinking scrap materials like metals, paper and wood.

  • Posted by annonymous

    Re: Declining oil imports.

    One other reason for the decline in oil imports the first two months this year is because domestic production has increased by some 10% since the start of the year, thanks to a couple of large Gulf of Mexico projects starting up.

    Scroll to the bottom of the page and look at the jump in production, particularly the big jump the first week of February:

    Look for domestic production to go up by about another 100K barrels/day by the end of the year, unless oil falls back to $40 or less and stays there. Either way, that will ease the oil import tab going through the year.

  • Posted by DOR

    China won’t devalue, if only because the current situation isn’t one of falling competitiveness, but of failing demand.