Trade deficit climbs 4.3% in January; Update: Wholesale inventories rise, sales fall

posted at 10:25 am on March 9, 2012 by Ed Morrissey

After getting good if incremental news on the jobs front this morning from the Bureau of Labor Statistics, the Obama administration got more mixed news from the Bureau of Economic Analysis on the trade front.  The US trade deficit jumped up 4.3% in January, thanks to a big rise in imports, but exports also nudged upward:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total January exports of $180.8 billion and imports of $233.4 billion resulted in a goods and services deficit of  $52.6 billion, up from $50.4 billion in December, revised.  January exports were $2.6 billion more than December exports of $178.2 billion.  January imports were $4.7 billion more than December imports of $228.7 billion.

In January, the goods deficit increased $2.4 billion from December to $67.5 billion, and the services surplus increased $0.3 billion from December to $14.9 billion.  Exports of goods increased $1.9 billion to $128.6 billion, and imports of goods increased $4.3 billion to $196.1  billion.  Exports of services increased $0.7 billion to $52.2 billion, and imports of services increased $0.4 billion to $37.3 billion.

The goods and services deficit increased $5.0 billion from January 2011 to January 2012.  Exports were up $12.9 billion, or 7.7 percent, and imports were up $18.0 billion, or 8.4 percent.

The trade deficit in and of itself is not necessarily a bad thing.  The change in direction is more important, and that’s what makes this report such a mixed bag.  An increase in exports is always good, but the increase in goods exports was slightly under 1.5%, while the increase in imports — which takes away from domestic production — increased 2.2%.  In services, the news was somewhat better, with a small increase in exports outstripping an increase in imports by $300 million.

Coupled with disastrous durable-goods and factory orders and shipment reports from January, the change in direction looks like the start of a bad trend.  Job numbers looked good today, but if this trend continues into February and March, the growth numbers for the US economy will begin to look poor — and that will kill whatever impulse there is now to create jobs, especially in the manufacturing sector.

The AP expects more of the same this year, thanks to the European fiscal crisis and declining demand for US products:

The U.S. trade deficit surged to the widest imbalance in more than three years in January as imports hit an all-time high, reflecting big demand for foreign-made cars, computers and food products.

U.S. exports to Europe fell, raising concerns that the debt crisis in that region could dampen U.S. economic growth. …

Economists are looking for the deficit this year to widen from last year’s $560 billion imbalance, reflecting in part the economic woes in Europe, which represents about 20 percent of America’s export market.

Economic growth weakens when exports decline because factories tend to produce fewer goods. And U.S. companies earn less.

We already saw that happen in January’s factory reports.  Keep an eye on these trends as we move into spring, and as Europe absorbs the impact of the solution to the Greek crisis.

Update: Also today, wholesale inventories continue to rise while sales fell:

Sales. The U.S. Census Bureau announced today that January 2012 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $413.1 billion, down 0.1 percent (+/-0.7%)* from the revised December level, but were up 7.9 percent (+/-1.1%) from the January 2011 level. The December preliminary estimate was revised upward $0.5 billion or 0.1 percent. January sales of durable goods were down 0.2 percent (+/-1.2%)* from last month, but were up 10.2 percent (+/-1.4%) from a year ago. Sales of metals and minerals, except petroleum were down 3.0 percent from last month, while sales of computer and computer peripheral equipment and software were up 1.7 percent. Sales of nondurable goods were down 0.1 percent (+/-0.9%)* from December, but were up 6.1 percent (+/-1.4%) from last January. Sales of paper and paper products were down 3.1 percent from last month.

Inventories. Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $475.5 billion at the end of January, up 0.4 percent (+/-0.4%)* from the revised December level and were up 9.4percent (+/-1.2%) from the January 2011 level. The December preliminary estimate was revised upward $0.5 billion or 0.1 percent. January inventories of durable goods were up 0.8 percent (+/-0.5%) from last month and were up 10.7 percent (+/-1.9%) from a year ago. Inventories of machinery, epuipment, and supplies were up 1.2 percent from last month and inventories of metals and minerals, except petroleum were up 0.9 percent. Inventories of nondurable goods were down 0.2 percent (+/-0.5%)* from December, but were up 7.6 percent (+/-1.1%) from last January. Inventories of chemicals and allied products were down 2.8 percent from last month, while petroleum and petroleum products were up 2.3 percent.

When inventories rise and sales fall, it puts downward pressure on future wholesale purchases and eventually forces discounting, which cuts into profits.  Small wonder that wealthier Americans still feel that we are in a recession.


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*groan* Looks like a rough summer coming our way, then.

Turtle317 on March 9, 2012 at 10:30 AM

Another dreckovery summer coming our way…

Archivarix on March 9, 2012 at 10:39 AM

Unexpectedly ?

I remember that long gone congressman Jim Sasser (D-TN) always yammering on during the “Bush 41″ years about the daffucit.
Daffucit this. Daffucit that… yet when the spendthrifit Dims are in charge their deficits typically become more invisible than their “homeless.”

viking01 on March 9, 2012 at 10:40 AM

Tell me again how lucky we are to have the demorats in power, and how obama made the sea levels fall!

vietvet68 on March 9, 2012 at 10:45 AM

Yeah but….free condoms! FREE CONDOMS!

Bishop on March 9, 2012 at 10:47 AM

Count it!

Thank you, President 0bama!

– crr6

Yes, thank you, Mr. “president.”

UltimateBob on March 9, 2012 at 10:54 AM

The trade deficit is only THE MOST IMPORTANT ECONOMIC INDICATOR!!! during Republican administrations… everybody knows that.

/

btw – There are many reasons the trade figures fluctuate. The best years in terms of a trade surplus were during the Great Depression… 9 years straight. Demand was so low in the US, imports sank. In the 80s, the opposite happened.

The trade numbers going up can be good or bad, going down they can be good or bad… you have to look deeper.

mankai on March 9, 2012 at 10:55 AM

libfreeordie in 5…4…3…2…!
LIARS LIARS PANTS ON FIRES!

KOOLAID2 on March 9, 2012 at 10:55 AM

Can one of the liberal posters come on here and explain the good news behind this?

When the inventories stop rising, who will pick up the slack?

dernst2 on March 9, 2012 at 10:56 AM

Captain Ed can always be counted on to find bad news in the economy.

“sure, the economy added jobs, but hand made wooden furniture inventories fell 5%”

What would rush call this kind of behavior?

e-pirate on March 9, 2012 at 10:56 AM

But we will manufacture CONDOMS!
Those are durable goods!
(New start up company…FLUKE CONDOMS)

KOOLAID2 on March 9, 2012 at 10:58 AM

But we will manufacture CONDOMS!
Those are durable goods!
(New start up company…FLUKE CONDOMS)

I wouldn’t be all that surprised if this happens.

earlgrey133 on March 9, 2012 at 11:00 AM

So are we getting Dr. Jekyl/Mr. Hyde economic reports or what. Jobs are good, but orders are low. I can’t make any sense of it.

earlgrey133 on March 9, 2012 at 11:01 AM

e-pirate on March 9, 2012 at 10:56 AM

It all goes together now doesn’t it?

The only reason there is any “good” news in the economy is because the numbers have been twisted, tortured, and reassembled until they can marginally produce a positive result.

You want to get excited about a slight uptick in hiring when millions of unemployed are being ignored to shine-up the numbers, feel free.

Bishop on March 9, 2012 at 11:02 AM

Trade gap is probably being driven mostly by the fact that the US economy is ramping up while other parts of the world are cooling (and Europe is actually contracting). We’re not as concerned about the sales and inventory numbers, as these are not widely outside expected ranges. Stay bullish.

TouchdownBuddha on March 9, 2012 at 11:04 AM

And to bolster all of Ed’s great analysis, GS has cut its GDP forecast for Q1 to a paltry 1.8%:

Moments ago we tweeted that today’s surge in the trade deficit will force banks to start cutting GDP forecasts. Sure enough, Goldman as usual, is the first to set the tone, by cutting its ultra real time GDP forecast from 2.0% to 1.8%.

Weight of Glory on March 9, 2012 at 11:06 AM

Companies “increasing their inventories” is an old accounting trick for hiding losses.

SnKArcbound on March 9, 2012 at 11:06 AM

Can one of the liberal posters come on here and explain the good news behind this?

When the inventories stop rising, who will pick up the slack?

dernst2 on March 9, 2012 at 10:56 AM

Ermm… not a liberal here, but I’ll lend a hand to KOOLAID2.
Ahem… here goes…

The trade deficit means nothing. The only thing that counts is Obama’s plan to get America Working. We need the government to invest more in the economy! We need more incentives to business! We need to develop more green technology! While we’re at it, let’s tax the rich more!

A feeble attempt, I know, but it’s the best I can do!

Turtle317 on March 9, 2012 at 11:32 AM

Bishop on March 9, 2012 at 11:02 AM

Not that you need any help making your points, but here is a graph showing employment as a percentage of population:
Webshots

Jack Slade on March 9, 2012 at 12:13 PM

libfreeordie in 5…4…3…2…!
LIARS LIARS PANTS ON FIRES!

KOOLAID2 on March 9, 2012 at 10:55 AM

And its all Boooooshes fault!

dogsoldier on March 9, 2012 at 1:10 PM

This news is yet another data point that the economy is NOT doing very well at all. The unemployment report isn’t great news either. It’s just meh news.

dogsoldier on March 9, 2012 at 1:14 PM

Europe absorbs the impact of the solution to the Greek crisis

There will no solution until after Greece defaults.

burt on March 9, 2012 at 5:35 PM

December 7 every day

I visited paradise this winter. We have angry Americans there.

The Hyatt and the other grand towers on Wakiki were loaded with Asians. Mostly from Japan.

The locals feel locked into dead end jobs and serving folks who don’t care and don’t tip. Heck, give a valet a $5 bill and watch the poor guy. And the cost of living is nuts for anyone on those islands.

The Hyatt is loaded with Camaros and Mustangs, mostly ragtops. A stripper Camaro costs nearly $5 million yen in Tokyo. Budget and another firm (Hertz) have rental counters in the hotel.

Our guests drive more hot US iron than you saw in American Graffitti.

Now the under educated, frustrated underclass of Yanks is bracing for China to loosen visas so we have another invasion.

But let us go back to cussing Obama and the UAW and rejoicing that their best shot is the Volt.

IlikedAUH2O on March 9, 2012 at 6:34 PM

mankai on March 9, 2012 at 10:55 AM

Yup, the Smoot-Hawley Tariff Act of June 1930 raised tariffs to the highest levels to create jobs. Boy, how it backfired.

But we also had no demand for any goods.

And ask Dr. Morici about deficits.

He lumps it with other problems:

Without prompt efforts to produce more domestic oil, redress the trade imbalance with China, relax burdensome business regulations, and curb health care mandates and costs, the U.S. economy cannot grow and create enough jobs.

And our leaders are looking for green miracles…

IlikedAUH2O on March 9, 2012 at 7:58 PM