Should There Be Optimism On U.S. Export Growth?

by: Steven Hansen


HSBC survey sees growing optimism on improving export trade.

Exports are not on an improving trend line.

No dynamic is apparent which offers optimism for global economic growth.

According to the latest HSBC Global Connections Trade Report:

Trade optimism among U.S. business leaders is at an all-time high and the U.S. is positioned to retain its dominance as a global technology export leader, including in industrial machinery, for the next twenty years, according to research by HSBC.

Two-thirds of manufacturers, wholesalers, and retailers expect trade volumes to grow in the next six months. However, optimism often does not have a high correlation with the future events. Trends (not optimism) are a better metric to project the future, as trends continue until they don't. Optimism is, well, just being hopeful. Bottom line, even with trend following, there is no technique which one can rely on to accurately foresee future events. And hope is the least of the sorry tool set.

What are the current trends in export trade? The red line in the graph below shows the rate of growth.

There is really no growth trend other than flat (the rate of growth being constant) for the last 12 months. The three month rolling average is marginally decelerating whilst the six month rolling average is marginally accelerating. (Rolling averages not shown.)

I try to imagine what dynamic could manifest where countries would need to import more - imports and economic expansion generally go hand-in-hand. No one seems to be projecting a global growth spurt. Also one should note that USA export prices are deflating (current rate of deflation = 1.1% year-over-year) - which would currently add to the growth rate in terms of inflation adjusted dollars.

The above graph is updated through January 2014, and we do have a window into February from Los Angeles / Long Beach container counts. Container counts are good indicators of economic growth because that number is a non-monetary measure, the data comes almost in real time, there is no backward revision - and there is a good historical relationship between trade and economic growth. Few econometrics have so much going for them.

Unadjusted 3 Month Rolling Average for Container Counts Year-over-Year Change (comparing the 3 month average one year ago to the current 3 month average) - Ports of Los Angeles and Long Beach Combined - Imports (red line) and Exports (blue line)

Notice the pretty significant fall in the three month rolling averages. The above graph says nasty things about the USA economy (imports) and the global economy (exports).

Looking at the USA economy, consider that contracting imports into the USA historically is a recession marker, as consumers and businesses start to hunker down.

The flat import growth over the last few years is very unusual - and is definitely not forecasting the USA economy is preparing for a growth spurt.

In any event, the current data is not pretty - and it is hard to see how one should be optimistic at this point about trade growth.

My usual weekly economic wrap is in my instablog.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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