U.S. Trade Trends Step Back Into The Hot-Tub Time Machine With All Its Risks

by: Robert Brusca

The US Trade gap is revised up and up and away it goes... As revised, the US trade gap is up over $50bln in each of the last three-months.

The January gap is at $52.56bln, up from $50.42bln in Dec 2011.

Exports rose a strong 1.4% m/m in January while imports rose an even stronger 2.1%

Non-petrol imports rose a strong 1.8% in Jan - the deterioration was not all due to oil; petrol imports did rise by 3.3%. However, for non petroleum trade exports grew 2.3%, faster than for imports at 1.8%. But that faster pace is not indicative of the trend...very unfortunately.

Evidence shows that non-petrol exports are slowing to a 5.4% pace over three months and 3.9% over six months compared to 7.1% yr/yr

Compare that to non-petrol imports: up at a 15.6% pace over three-months, up from 6.6% over six months and 7.6% over 12-months.

Imports are rolling thunder - a real sign that importing firms are seeing domestic demand ramp up. Imports are a harbinger of GDP growth. This Increase in the pace of imports is also likely a precursor to stepped up inventory growth which so far has been very defensive and has lagged behind sales growth even as Inventory to sales ratios have slipped to five-year lows in retailing.

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These trends for export and imports are reconfirmed when applied to REAL non petrol exports and imports. The US trade position is back to deteriorating. A slumping world economy is curtailing US exports while a resurgent US demand (Yes, that's resurgent US demand for those of you in favor of milquetoast monetary policy at the Fed) is driving imports higher. Imports, especially non-oil imports, are an authentic harbinger of domestic growth.

Exports are decelerating in real terms over three months compared to six months in terms of the overall export flow. Exports of foods, feeds and beverages, exports of industrial materials, exports of consumer goods and exports of 'other' also are locked in a sharp deceleration. Only capital goods and autos and parts accelerated over three-months.

Imports in real terms are in a broad-based acceleration over three months compared to six months in all major categories except foods feeds and beverages. The headline rate, of course, is accelerating, and sharply, to a pace of 12.8% (saar) from 5% over six months and 1.9% over 12-months. In contrast, the real export headline shows growth is rising at a 1.9% pace (saar) over three months and is stuck at growth rates below 5% over six months and12-months.

We are back to the 'same old,' 'same old'.

C'mon baby, do the locomotive.

The US economy is the global locomotive again even as it struggles domestically to be 'motive' with a monetary policy that is Loco. Gives Locomotive a whole new meaning, doesn't it? The US will suck in goods from abroad while others fail to grow and US exporters will face stagnant conditions overseas, stymieing efforts to make inroads .

Eventually foreigners will bemoan the large and rising US trade deficit as a growth killer even though right now it is helping to stoke output in overseas economies that will not or cannot spur their own domestic demand.

Overseas, in Europe, they are doing the German austerity Hokey Pokey!

Even the ECB is switching to an inflation-fighting posture and supporting the e-Zone even less.

Getting back to basics...

China is *supposedly' transitioning to a policy of emphasizing domestic consumption over pure growth. We will see how soon that has any impact on the US -China trade imbalance.

On balance the US economy really looks like it is stuck in that same old rut. We have learned nothing from the financial crisis. Central banks/governments are doing nothing to bridge the chronic one-way trade imbalances that have become ossified and that contributed to the US and the European situations. . The capital flows keep piling up. Investors keep buying assets they do not really want to hit exchange rate targets their countries can't live without. Some countries continue to pursue their export-led growth strategies. China is supposed to be different but how soon and how vigorously will it change? In the meantime risk accumulates.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.