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  The Trade Deficit in Goods and Services Came in at $48.7 Billion in May
Posted Under: Data Watch • Trade
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Implications: The trade deficit shrunk in May, a result of a small increase in exports and an oil-led decline in imports. Exports are at the second highest level on record and do not yet show any clear signs of slowing due to the financial situation in Europe or a slowdown in China. Exports of goods to the Euro area are up 4% in the past year while exports of goods to China are up 13.5%. Meanwhile, increasing energy production in the US is having large effects on trade with other countries. Real (inflation-adjusted) oil exports have tripled since 2005, while real oil imports are down about 20%. As a result, the real trade deficit in oil has been cut almost in half in the past several years and is the smallest since at least the early 1990s. The US trade deficit is also caught between two powerful opposing forces. On one side, the large depreciation in the foreign exchange value of the dollar in the past decade means the US is a much more attractive place from which to export. Many foreign automakers are now using the US as an export hub, Airbus is moving business to Alabama, and companies that had previously placed operations abroad are now moving back home. The level of productivity is high, so unit labor costs are low in the US relative to other advanced economies. However, the resilient US consumer still likes imported goods. We think the trade sector will be, on average, a small negative for real GDP growth in the year ahead. This is the normal outcome when the US economy is growing.

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Posted on Wednesday, July 11, 2012 @ 10:34 AM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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