September Trade Balance

Updated 19-Nov-09 19:27 ET

Highlights

The international trade balance widened much more than expected in September. The gap jumped from $30.7 billion to $36.5 billion. The consensus expected the deficit to increase to only $31.8 billion.
The goods deficit rose $5.6 billion to $47.7 billion as exports increased $3.5 billion and imports increased $9.1 billion. The services surplus remained unchanged at $11.1 billion as both imports and exports increased by $0.2 billion.
Automotive vehicles, parts and engine imports rose $1.7 billion as import dealers began restocking 2010 model year cars after the drop in inventories from the Cash for Clunkers stimulus package. Capital goods excluding autos imports rose $0.8 billion as industrial machines imports rose almost $0.2 billion and aircraft imports increased $0.16 billion. Consumer good imports increased $0.7 billion due to significant increases in pharmaceutical imports ($0.2 billion) and artwork ($0.2 billion).
The increase in export goods was mainly due to a jump in civilian aircraft exports ($0.9 billion). Other increases in exports included automotive vehicles, parts and engines ($0.2 billion), consumer goods ($0.4 billion), and industrial supplies and materials ($1.4 billion).

The details of the data seem a little peculiar.
The biggest increase in imports were industrial supplies and materials, which rose $5.5 billion. On the surface, the increase in industrial supplies would suggest a strengthening in the manufacturing sector. However, a detailed breakdown of the industrial supplies and materials components shows crude oil imports increased $4.0 billion, fuel oil rose $0.5 billion, and liquefied petroleum gases imports jumped $0.3 billion. In total, 87% of the industrial supplies imports were petroleum based.
Here is where it gets strange. According to the Energy Information Association (EIA), days of supply of crude oil fell from an average of 23.8 days in August to 22.6 days in September. The increase in imports did nothing to combat the drop in supply, which would suggest an increase in oil usage. However, according to the EIA oil usage remained at 9.07 million barrels of oil per day, the same rate as August.
It is unclear why the extra oil was imported and where it went.
The rest of the import data makes more sense.

The trade deficit can be thought of as a Catch-22 situation for the US economy. A drop in the deficit has resulted from import demand declining at a faster rate than the decline in export demand. The result was an increase in GDP growth without any actual increase in output. The recent rise in the deficit was the result of both exports and imports growing, but with imports outpacing exports. We are now experiencing an increase in output, but GDP is negatively affected. The trade-off of more production for negative GDP growth is better than the reverse and we'll take the increasing deficit as a signal of a stronger economy.

Category	SEP	AUG	JUL	JUN	MAY
Trade Deficit	-$36.5B	-$30.8B	-$31.9B	-$27.5B	-$26.4B
Exports	$132.0B	$128.3B	$128.0B	$124.9B	$122.3B
Imports	$168.4	$159.1B	$159.8B	$152.4B	$148.7B