Trade Deficit Increases $1.2 Billion in May, Shows Slight Real Decrease From 1st Quarter

Our trade deficit increased by 2.9% in May as the value of both exports and imports decreased but our exports fell by a greater amount.  The Census report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services trade deficit rose by $1.2 billion to $41.9 billion in May from an April deficit which was revised from $40.9 billion to $40.7 billion. Our May exports fell $1.5 billion to $188.6 billion on a $1.6 billion decrease to $127.7 billion in our exports of goods and an increase of $0.1 billion to $60.9 billion in our exports of services, while our imports fell $0.3 billion to $230.5 billion on a $0.4 billion decrease to $189.2 billion in our imports of goods and a $0.1 billion increase to $41.2 billion in our imports of services.

Lower exports of capital goods accounted for the entire decrease in our exports and then some, as they fell $2,438 million to $44,896 million on a $1,240 million drop in our exports of civilian aircraft and decreases of over $300 million each in our exports of industrial engines, other industrial machines, and telecommunications equipment.  We also saw a $80 million decrease in our exports of consumer goods as decreases in exports of pharmaceuticals and cells phones offset an increase in our exports of artwork and antiques.  Offsetting the decreases in those categories, we saw an $804 million increase to $37,695 million in our exports of industrial supplies, as our exports of fuel oil rose by $515 million and our exports of other petroleum products rose by $456 million.  In other categories, our exports of automotive products rose by $106 million to $12,618 million, our exports of foods, feeds, and beverages rose by $181 million to $10,964 million, and our exports of goods not categorized by end use fell $19 million to $4,892 million...

Reduced imports of capital goods, which fell by $781 million to $50,791 million on a $793 million drop to $575 million in our imports of oilfield equipment, lower imports of industrial supplies, which fell by $604 million to $40,945 million on a $372 million drop in oil imports, and a drop of $382 million to $10,500 in our imports of foods feeds and beverages accounted for the lower May imports.  Those were offset by a $847 million increase to $29,462 million in our imports of automobiles, parts and engines, a $16 million increase to $48,928 million in our imports of consumer goods, and a $468 million increase to $6,817 million in our imports of goods not categorized by end use.  For more details, two itemized lists of the value of more than 200 export and import line items, both monthly and year to date, can be viewed in table form in exhibit 7 and exhibit 8 of the full pdf for this release...

In determining how the April and May changes in trade will effect 2nd quarter GDP, the BEA adjusts each imported or exported item for inflation with the appropriate price change for that item or category from the Import and Export Price Indexes for those months to get the quantity of items traded, quite a tedious process which we'd be unable to duplicate.  However, exhibit 10 in the pdf for this report provides us with monthly goods trade figures by end use category and in total in chained 2009 dollars, ie, the same inflation adjustment used by the BEA to compute trade figures for GDP, albeit these are not annualized here.

To compute the change in trade from the first quarter to April and May in GDP terms, we have to annualize the change in the monthly figures, which we do here by treating the average of April and May trade as a proxy for the total 2nd quarter figure, and compare that to the average we have for the first quarter.  First, we find that our real goods exports averaged $119,172 million monthly in the first quarter, while April and May real exports averaged $120,651 million in 2009 dollars. Then, comparing the change between the two as an annualized figure, we find that our real goods exports are rising at an 5.1% annual rate so far this quarter.  Computing similarly, our imports averaged $176,770 million monthly in the first quarter while they’ve averaged $178,307 million so far in the second quarter; meaning our real imports are rising at a 3.5% annual rate so far this  quarter.

As you'll recall, exports add to GDP because they are domestic production that is not counted in any other GDP component, while imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically. Goods exports increasing at an 5.1% in the 2nd quarter would partially reverse their 11.6% 1st quarter rate of decline and would add ~0.48 percentage points to GDP, while imports increasing at a 3.5% rate would be less than half of the 7.2% rate of increased imports seen in the first quarter and would subtract ~0.45 percentage points from GDP. So if the April and May trade deficit levels persists in June, the slight improvement in net trade will add about 0.03 percentage points to GDP..

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i.e. it's a bust

Same end result just volume of trade is much less than Q1.

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