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Trade Data Not Indicating Economy Is Improving

Sep. 06, 2014 8:01 AM ET4 Comments
Steven Hansen profile picture
Steven Hansen's Blog
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I just published ECRI's leading index which is now forecasting little economic growth over the next 6 months. I know the markets thinks everything is hunky dory - and falsely believes that the BLS employment data confirms a growing economy. They believe Friday's bad data was an anomaly - and I too believe this one month cannot be viewed as a new trend.

But our Econintersect employment forecast index is not indicating that there will be any improved rate of growth in employment over the next six months, and one cannot use employment to forecast the future as it is a lagging index.

But trade data - on the other hand - is a good indicator of the future (especially imports). The unadjusted data is saying import rolling averages decelerated month-over-month whilst exports accelerated. The import unadjusted data and the associated rolling averages do not agree with headline seasonal adjusted data. Historically, a decline in consumer imports is not a positive economic sign.

  • Import goods growth has positive implications historically to the economy - and the seasonally adjusted goods and services imports were reported up month-over-month. Econintersect analysis shows unadjusted goods (not including services) growth deceleration of 3.2% month-over-month (unadjusted data). The rate of growth 3 month trend is decelerating.
  • Exports of goods were reported up, and Econintersect analysis shows unadjusted goods exports growth acceleration of (not including services) 1.8% month-over month. The rate of growth 3 month trend is accelerating.

Inflation Adjusted But Not Seasonally Adjusted Year-over-Year 3 Month Rolling Average - Goods Export (blue line) and Goods Import Excluding Oil (red line)

/images/z trade2.PNG

  • The increase in headline exports was broad based (except for consumer goods, while the improvement in headline imports was also broad based (except for capital goods and consumer goods).
  • The market expected a trade deficit of $41.0 to $46.7 billion (consensus $45.0 billion deficit) and the seasonally adjusted headline deficit from US Census came in at a deficit of $40.5 billion.
  • It should be noted that oil imports were up 24.8 million barrels from last month, and down 24.5 million barrels from one year ago.
  • The data in this series is noisy, and it is better to use the rolling averages to make sense of the data trends.

The headline data is seasonally but not inflation adjusted. Econintersect analysis is based on the unadjusted data, removes services (as little historical information exists to correlate the data to economic activity), and inflation adjusts. Further, there is some question whether this services portion of export/import data is valid in real time because of data gathering concerns. Backing out services from import and exports shows graphically as follows:

Inflation Adjusted But Not Seasonally Adjusted Year-over-Year Change Goods Export (blue line), Goods Import Excluding Oil (red line), and Goods Import with Oil (yellow line)

/images/z trade1.PNG

Growing exports is a sign of an expanding global economy (or at least a sign of growing competitiveness).

Seasonally Adjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line)

Indexing the data to the end of the recession, here is a look at the relative growth of imports and exports using current dollars as the basis for the index.

Seasonally Adjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line) indexed to the End of Recession

Econintersect is most concerned with imports as there is a clear recession link to import contraction. Adjusting for cost inflation allows apples-to-apples comparisons in equal value dollars between periods. The graph below uses seasonally adjusted data.

Seasonally and Inflation Adjusted Year-over-Year Change Imports (blue line) and Exports (red line)

Note: In general this is a rear view look at the economy - however, imports do have a forward vision of up to three months ahead of expected economic activity. I would not be betting that an economic growth tidal wave is coming.

For a complete look at economic and financial events this past week [click here].

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