The new report on the US trade balance from the Census Department sounds like good news … if you don’t read farther than the first sentence. The top line trade deficit fell in October by 1.6%, but that didn’t come from renewed strength in American exports, which fell 0.8% along with a 1.0% decrease in imports. In fact, the only reason that the overall trade deficit fell at all was because of a revision to the previous month that added more than a billion dollars:
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total October exports of $179.2 billion and imports of $222.6 billion resulted in a goods and services deficit of $43.5 billion, down from $44.2 billion in September, revised. October exports were $1.5 billion less than September exports of $180.6 billion. October imports were $2.2 billion less than September imports of $224.8 billion.
In October, the goods deficit decreased $0.7 billion from September to $58.8 billion, and the services surplus was virtually unchanged at $15.3 billion. Exports of goods decreased $1.5 billion to $127.8 billion, and imports of goods decreased $2.2 billion to $186.6 billion. Exports of services were virtually unchanged at $51.4 billion, and imports of services increased $0.1 billion to $36.1 billion.
The goods and services deficit increased $4.0 billion from October 2010 to October 2011. Exports were up $19.7 billion, or 12.3 percent, and imports were up $23.7 billion, or 11.9 percent.
The chart from the BEA on trade deficits shows that American exports have flattened out over the last several months, and dropped slightly over the last two:
Of course, imports have also dropped off, but they’re not being replaced by sales of American goods. As Reuters notes, this report is an indication of further slowing in the economy … or at least the American economy:
The U.S. trade deficit narrowed in October to its lowest in 10 months, but imports from China hit a record high, a government report showed on Friday.
The trade gap totaled $43.5 billion, in line with a consensus estimate from analysts before the report. However, the Commerce Department revised its estimate of the September trade deficit to $44.2 billion from $43.1 billion.
As a result, the October trade gap narrowed 1.6 percent from September, instead of widening, as most analysts expected.
Both U.S. imports and exports declined in October, in a possible sign of weakening demand in the United States and abroad.
The AP, via CBS, offers a somewhat less honest assessment. They don’t get around to mentioning that exports dropped off as well as imports until the third paragraph, and then fail to connect the dots, as Reuters at least does in the fourth paragraph above. In fact, their fifth paragraph offers this laughable lecture:
A lower deficit can boost economic growth because it typically means foreign nations are buying more American goods. That can lead to more jobs and higher consumer spending, which fuels 70 percent of economic activity.
Yeah … except that they’re not buying more American goods in this case. That’s what a decline in exports means. This report shows weakening global demand, not a boost in American fortunes.
Regarding China, there was some good news for the US as well. American exports to China increased to their highest level in ten months at $9.7 billion. However, their imports totaled $37.8 billion, which would account for more than half of the overall trade imbalance. Japan has recovered from its tsunamis as well, with their imports to the US spiking to their highest level in more than three years. Whatever weakness remains in the American economy can no longer be assigned to disruptions in the supply chain from Japan, as was the case earlier this year.
The decline in demand demonstrates the kind of weakness we would normally associate with an economy running at a 2.0% GDP or worse, and since October is the first month in Q4, this gives a fair indication that we should not expect a better GDP report for the end of this year. We are essentially back to the status quo before the tsunamis wracked Japan and the oil-price shock at the beginning of the year, which means that we have not seen any structural improvement whatsoever in the American economy.