Economists were upbeat heading into today’s report on International Trade in Goods and Services by the BEA.

Exports did rise by $1.8 billion, but imports rose by $3 billion widening the trade gap.

Year-to-date, the goods and services deficit increased $10.8 billion, or 13.1 percent, from
the same period in 2015. Exports decreased $20.5 billion or 5.5 percent. Imports decreased
$9.7 billion or 2.1 percent.

Amusingly, Bloomberg Econoday finds strength in these numbers. Let’s take a look.

The Econoday consensus estimate was a trade gap of -46.2 billion in a range of estimates of -$46.8 billion to -$43.0 billion. That gap widened just outside the range to -47.1 billion. Here’s the Econoday spin.

Highlights

The nation’s February trade deficit came in at a wider-than-expected $47.1 billion in a report, however, that mostly points to rising cross-border demand.

Domestic demand was up as imports rose 1.3 percent to $225.1 billion in the month led by a surge for consumer goods and also a gain in services. And foreign demand was up as exports rose 1.0 percent to $178.1 billion and include gains for the nation’s consumer goods, vehicles and agricultural products. But there are signs of weakness on the export side including for capital goods, where softness has been pointing to weak global business investment, and also a rare decline, though only a marginal one, for the nation’s services.

The net gap would have been larger if not for a sharp price decline in oil-related products. The price of imported crude averaged $27.48 per barrel which is the lowest since 2003 and down nearly $5 from January. This effect is likely to reverse in the next report given oil’s price strength during March.

By country, the gap with China narrowed by nearly $1 billion in the month to $28.1 billion while the gap with Canada, reflecting low oil prices in the month, narrowed by $1.5 billion to an even $1.0 billion. Gaps with the EU and Mexico both widened, to $9.9 billion and $5.0 billion respectively.

The spots of weakness on the export-side are a concern but this report is mostly positive even though, given the wider-than-expected headline, it will scale back first-quarter GDP estimates.

Recent History

The nation’s trade deficit is expected to widen slightly in February, to a consensus $46.2 billion vs January’s $45.7 billion, but cross-border trade, based on the advance report for goods, picked up noticeably in a welcome sign for global demand. Exports of goods rose 2.0 percent in the advance data for February with imports up 1.6 percent. This year’s decline in the dollar should begin to give exports some traction.

Econoday Summation

• Exports were supposed to rise 2% but instead only rose 1%.
• The gap would have been even wider were it not for dramatically falling oil prices.
• The effect of oil will reverse next month, thereby widening the deficit.
• Capital goods trade was lower.
• Net effect will be lower GDP for first quarter.

Econoday Conclusion

“This report is mostly positive.”

US Dollar Effects

Let’s investigate the Econoday idea “This year’s decline in the dollar should begin to give exports some traction.”

I somewhat sympathize with the Econoday statement, in isolation, but the global economy is clearly slowing. In addition, the effect of rising energy prices, also in isolation, would be for a widening of the trade gap and a net decrease in GDP.

The rise in the US dollar index from May 2014 was 25%. The decline from the top (and the index did not spend much time at the top), is on the order of 5.5%. The decline from the average of the last year is on the order of 2.5% or so.

Is that enough to cause traction in exports?

A 2.5% decline certainly won’t provide much traction if the global economy is slowing.

In light of the 25% rise since May of 2014, even 5% may not provide all that much traction even if the global economy isn’t slowing.

Mike “Mish” Shedlock