October Trade Deficit Up 8.6%, Revisions Whack 3rd Quarter GDP

Our trade deficit rose by 8.6% in October as the value of our exports slipped a bit while the value of our imports increased.  The Census report on our international trade in goods and services for October indicated that our seasonally adjusted goods and services trade deficit rose by $3.8 billion to $48.7 billion in October from a revised September deficit of $44.9 billion.   The value of our October exports fell by less than $0.1 billion to $195.9 billion on a $0.3 billion decrease to $130.3 billion in our exports of goods and a $0.3 billion increase to $65.6 billion in our exports of services, while our imports rose $3.8 billion to $244.6 billion on a $3.5 billion increase to $199.4 billion in our imports of goods and a $0.3 billion increase to $45.2 billion in our imports of services.   Export prices were on average unchanged in October, so the relative real decrease in October exports is close to the nominal decrease, while import prices were 0.2% higher, meaning real imports were smaller than the nominal dollar values reported here by that percentage..

Exhibit 7 in the Full Release and Tables for October (pdf) indicates that out exports of goods were little changed because the increase in our energy product exports was offset by decreasing exports of commercial aircraft and soybeans:

  • Exports of foods, feeds, and beverages decreased $1.3 billion as soybean exports decreased $1.4 billion.
  • Capital goods exports decreased $1.2 billion as civilian aircraft exports decreased $1.1 billion.
  • Exports of industrial supplies and materials increased $2.6 billion on increased exports of fuel oil, crude oil, natural gas liquids and other petroleum products.

Exhibit 8 in the Full Release and Tables gives us the line item details on our goods imports and shows that higher imports of consumer goods, crude oil, and other goods were responsible for the increase in our imports:

  • Imports of industrial supplies and materials increased $1.8 billion on a $1.5 billion increase in crude oil imports
  • Consumer goods imports increased by $0.8 billion, led by a $0.3 billion increase in imports of cell phones
  • Imports of other goods not categorized by end use increased by $1.1 billion.

Further details from the press release indicate that  "October figures show surpluses, in billions of dollars, with South and Central America ($3.9), Hong Kong ($2.3), Brazil ($1.1), Singapore ($0.7), Saudi Arabia ($0.3), and United Kingdom ($0.2).  Deficits were recorded, in billions of dollars, with China ($31.9), European Union ($12.0), Mexico ($6.0), Japan ($5.9), Germany ($5.3), Italy ($2.7), South Korea ($2.7), India ($2.1), Canada ($1.9), OPEC ($1.6), France ($1.6), and Taiwan ($1.6).

Note that with this release, the data for exports and imports of goods and services going back to April have been revised, which means that previously published GDP figures for the 2nd and 3rd quarters will also have to be revised.  While the new 2nd quarter trade data for 2017 will not be incorporated into GDP figures until the annual revision to GDP is undertaken with the 2nd quarter 2018 release at the end of July 2018, revisions to 3rd quarter trade will be included with the 3rd estimate of 3rd quarter GDP, which will be released later this month.  The revisions are rather significant, especially to services; for instance, September exports of services were revised down $0.9 billion, while September imports of services revised up $0.6 billion.  As result, the September trade deficit was at $44.9 billion, revised from the $43.5 billion reported last month.  In like manner, the August trade deficit was revised higher, from the revised deficit of $42.8 billion reported last month to $44.3 billion, and the July trade deficit was revised from the $43.6 billion reported last month to $45.2 billion.  Hence, the total $4.5 billion upward revision in the trade deficit for the 3rd quarter months would work out to a decrease to third quarter GDP at a rate in excess of $18 billion annually.  That means that revisions to trade included with this release will have the effect of subtracting 0.40 percentage points or more from previously published 3rd quarter GDP figures...

To gauge the impact of October trade on 4th quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted for inflation in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, with the only difference being that they are not annualized here.  From that table, we can estimate that revised 3rd quarter real exports of goods averaged 125,674.3 million monthly in chained 2009 dollars, while inflation adjusted October exports were at 125,658 million in the same 2009 dollar quantity index representation.  Annualizing the change between the two figures, we find that October's real exports of goods are running at a 0.05% annual rate below those of the 3rd quarter, a change that would not have a statistically significant impact on 4th quarter GDP, even if continued at the same rate through November and December.  At the same time,  however, we find that our 3rd quarter real imports of goods averaged 187,706.3 million monthly in chained 2009 dollars, while inflation adjusted October goods imports were at 190,978 million.  That would mean that so far in the 4th quarter, we have seen our real imports of goods increase at annual rate of 7.16% over those of the 3rd quarter.  Since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 7.16% rate would subtract about 0.88 percentage points from 4th quarter GDP.   Hence, if the October trade deficit is maintained at the same level throughout the 4th quarter, our deteriorating balance of trade in goods would subtract about 0.88 percentage points from the growth of 4th quarter GDP.  Note that we have not estimated the impact of the usually less volatile change in services here because the Census does not provide inflation adjusted data on those, and we don't have easy access to all their price changes.


(Note the above was excerpted from my weekly synopsis at Marketwatch 666)   

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