Trade Deficit Improves but for All the Wrong Reasons

I have not delved into the intricacies of this trade report since its not one of the more important things I follow - for so long it's just been a huge number that we shrug off as status quo. We buy much more from people outside the country than they buy from us - that's the new and innovative economy we've build. Hence I don't know all the 'seasonal adjustments' or what not that may or may not be done with it, but I would assume there is not much to fudge in this report. Some sum of goods is valued as going out of the US, and some sum of goods is valued as coming in. The difference between the two is either your deficit or your surplus. We've run huge trade deficits for as long as the eye can see - essentially absorbing far more than we export out. This has been part of our structural problems in the country.

First the green shoots - this deficit has shrunk dramatically the past year. Now for the brown manure - it's for all the wrong reasons. We'd want exports surging (meaning people want stuff we make) to be the primary driver of this shrinking trade deficit. Instead, a massive falloff in imports is the reason... which speaks to the absolute weakness in both the business and consumer economies. An eye opening drop in demand for things outside the country as businesses "make less" and consumers "shop less". Imports are down 35% versus 1 year ago... that is just incomprehensible for an economy of this size.

Now remember, almost every country in the world depends on the US consumer to "shop like there is no tomorrow" for part (or in some cases, much) of their growth. So this has implications not just for us, but the entire world. The whole thesis of export led growth by China, Germany, and a host of other countries seems implausible until you get to work people. By work, I mean get to the mall and "do your thing".

• The U.S. trade deficit fell to the lowest level in more than nine years in May as exports posted a small gain while the weak American economy pushed imports down for a 10th straight month. The Commerce Department said Friday the deficit narrowed to $26 billion, a drop of 9.8 percent from April and the lowest level since November 1999. Economists expected the deficit to widen to $30.2 billion in May.
• So far this year, the deficit is running at an annual rate of $350 billion, about half of the $695.9 billion deficit for all of 2008. Economists believe that trend will continue as weakness in the U.S. depresses demand for imported goods.
• The big improvement reflects the prolonged U.S. recession, which has sharply reduced American demand for imported goods. U.S. exports also are down from last year's peaks, hurting American manufacturers, but those declines have been smaller than the plunge in imports.
• America's deficit with Canada, its largest trading partner, dropped to $628 million, the smallest monthly imbalance in 15 years. The deficit with Japan shrank to $1.9 billion, the lowest deficit with that country in more than two decades.

Now again, we have to thank our lucky starts that (a) we have so much fertile agricultural land and (b) we have not found a way to export said farmland to other countries where wages are far lower - because if they could, they would. Thus far they have not thought of a way, so we still benefit from the farm products - one of the last great exports we can count on. That said, our exports are still down 25% from a year ago, so only partially balancing the 35% drop in imports. All in all, global trade has really shriveled.

• Exports of goods and services rose 1.6 percent to $123.3 billion in May, reflecting increased sales of soybeans, corn and other farm products, along with higher exports of industrial machinery, generators and computers. But even with the May increase, U.S. exports are 25 percent below the record-high set in July 2008.
• Imports edged down 0.6 percent to $123.3 billion, the 10th consecutive monthly decline. Imports are 34.9 percent below the all-time high set last July.