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Trade Data Supporting An Improving Economy

Although our analysis of the December trade data was not as good as the headlines, there is a clear growth trend in trade - and trade mimics the economic direction.

Our monthly analysis using unadjusted data showed imports declining and imports growing. But the data in this series wobbles and the 3 month rolling averages are the best way to look at this series. The 3 month averages are improving.

  • 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 decelerated 2.7 % month-over-month (unadjusted data) - up 2.4 % year-over-year (up 0.6 % year-over-year inflation adjusted). The rate of growth 3 month trend is improving (rate of change of growth is accelerating).
  • Exports of goods were reported up, and Econintersect analysis shows unadjusted goods exports growth acceleration of (not including services) 3.2 % month-over month - up 5.6 % year-over-year (up 4.6 % year-over-year inflation adjusted). 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)

z trade2.PNG

  • The improvement in seasonally adjusted (but not inflation adjusted) exports was attributed to capital goods. Import growth was due to industrial goods and industrial supplies.
  • The market expected (from Bloomberg) a trade balance of $-45.5 B to $-42.0 B (consensus $44.9 billion deficit) and the seasonally adjusted headline deficit from US Census came in at $44.3 billion.
  • It should be noted that oil imports were down 2 million barrels from last month, and up 14 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)

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) and Exports (red 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.

What is clear from the above graphs, trade is NOT going gangbusters - and even it is far the peaks reached since the end of the Great Recession - but it is in a gentle improvement cycle.

Other Economic News this Week:

The Econintersect Economic Index for February 2017 again improved but the value remains in the territory of weak growth. The index remains well below the median levels seen since the end of the Great Recession. But there are several indications in the data we view of better dynamics in the future. Six-month employment growth forecast indicates little change in the rate of growth.

Bankruptcies this Week from Privately-held Eastern Outfitters, Ultrapetrol Bahamas

Please visit our our landing page for a summary of our analysis this past week.

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