The December trade figures were released today. The trade deficit widened a bit, largely in line with the Bloomberg consensus, but a little less than assumed by BEA statisticians. This outcome meant a likely revision upward to 2010Q4 GDP. From Lahart/WSJ RTE.
The advance GDP report that came out last month estimated that the trade deficit would widen to somewhere around $43 billion in December from $38.3 billion. Friday’s reported trade gap was a bit narrower than that assumption — $40.6 billion. That in turn implies a stronger economy, since the U.S. produced more for its own consumption and export than the statisticians supposed.
How much? As a rule of thumb, for every $1 billion the trade deficit narrows, GDP goes up about 0.1 percentage point. So all else equal (and it never is) GDP likely grew at an annual pace of 3.3% or 3.4% in the fourth quarter, rather than 3.2%.
On a slightly different take, The Guardian observes:
The US trade deficit with China has hit a record high, fuelling tensions between the countries over currency imbalances.
The gap between US imports from China and what it sold to the country rose to $273.1bn (£170bn) last year, the largest trade imbalance the US has ever recorded with a single country.
One of the things I learned writing memos was to beware the phrase “record high”. That’s because with economies growing, and price levels on average (although not always) rising, records as a natural matter of course would be regularly made. This places the US-China trade deficit in perspective:
Figure 1: US trade balance, seasonally adjusted (blue), trade balance ex.-oil, seasonally adjusted (red), US-China goods trade balance (green) not seasonally adjusted, and 12 month trailing moving average (teal bold), all annualized, in billions of USD. NBER defined recession dates shaded gray. Source: BEA, December 2010 trade release, and NBER.
Normalize the trade balance by nominal GDP, then matters look slightly different.
Figure 2: US trade balance, seasonally adjusted (blue), trade balance ex.-oil, seasonally adjusted (red), US-China goods trade balance (green) not seasonally adjusted, and 12 month trailing moving average (teal bold), all divided by US nominal GDP, seasonally adjusted. NBER defined recession dates shaded gray. Source: BEA, December 2010 trade release, Macroeconomic Advisers (January 11 estimate), and NBER.
To me, what’s of interest is not just the trade balance, but what is the trend in real imports from China. For that, we need the price deflator; unfortunately, that series has only been calculated since 2003M12. After deflating the series, and applying the X-12 seasonal adjustment filter to the log series, one obtains the following:
Figure 3: Log goods imports from China, not seasonally adjusted (blue), real imports in 2003M12 dollars, not seasonally adjusted (red), and seasonally adjusted (bold teal). NBER defined recession dates shaded gray. Source: BEA, December 2010 trade release, BLS, Export/Import price release, NBER, and author’s calculations.
From 2003M12-2007M01, the growth rate of imports was 22.6%, while it has been only 3.7% over the 2007M02-2010M12 period. It remains to be seen what import prices do going forward.