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Advanced Technology Products, ATP, bubbles, Canada, China, Eurozone, goods trade, Japan, Made in Washington trade flows, manufacturing, Mexico, non-oil goods trade, services trade, Switzerland, Trade, trade deficit, U.S.-Mexico-Canada Agreement, USMCA, {What's Left of) Our Economy
Wednesday’s latest official report on monthly U.S. trade (for April) showed that the country’s huge and chronic trade deficit soared by a humongous 23.04 percent sequentially – from March’s $60.59 billion to $74.55 billion.
But did that really happen?
I ask because of the unusually big revisions made to the March deficit total: It was downgraded by a stunning (at least for trade data geeks) 5.66 percent, from $64.23 billion to $60.59 billion. That’s the lowest total since the $58.18 billion recorded in September, 2020, when the economy was still shaking off the depressing disruptive effects of the first CCP Virus wave.
It’s not that I doubt that the deficit rose. It’s just that the magnitude counts for a great deal. So it’s OK to be impressed that this reported April level is the highest since last October’s $78.33 billion, and that the increase is the fastest since the weather-affected results of March, 2015 (45.74 percent). But keep in mind throughout this post that this and numerous other large March revisions greatly affect the sequential baseline for judging the April increases and decreases. Therefore they inevitably create doubts about their true extent. And don’t forget that the April data could undergo major revisions, too.
With those caveats in mind, let’s proceed to observe that if the general April trends hold, the new data show that the deficit worsened for the worst possible combination of reasons – exports fell and imports climbed. That discouraging pattern hasn’t appeared since last December, and if it continues, could mean that the economy is transitioning from a period of relatively healthy, sustainable growth that’s led saving and producing to one of worrisome bubble-ized growth, led by borrowing and spending.
In this vein, the goods deficit in April surged from $81.58 billion to $96.11 billion. The level was the highest since last October’s $98.21 billion, and the 17.81 percent pace was the hottest since weather-affected March, 2015’s 25.18 percent. Don’t forget, however – the March goods deficit was downgraded by a whopping 5.79 percent, from $86.59 billion to $81.58 billion. That’s also the lowest total since September, 2020 ($79.25 billion).
Monster revisions also affected the April service trade surplus figure. It represented a 2.73 percent improvement, from $20.99 billion to $21.56 billion. That number is the best since March, 2021’s $21.94 billion and the biggest jump since last October’s 5.90 percent. But the March result was revised down by even more than the total trade deficit or goods deficit results – 6.15 percent (from $22.37 billion).
Combined goods and services exports slid from $258.19 billion to $249.02 billion, a 3.55 percent retreat that took them to the lowest level since March, 2022 ($245.68 billion). And the drop was greatest since peak pandemic-y March, 2020’s 9.48 percent. Revisions to total exports for March weren’t negligible either – 0.80 percent up.
Overall imports in April, however, were up for the first time since September, growing by 1.50 percent, from $318.78 billion to $323.57 billion. That March figure is a 0.50 percent downward revision.
Similar to overall exports, U.S. sales abroad of goods tumbled from $176.46 billion to $167.10 billion. This 5.30 percent contraction pushed goods exports down to their lowest level since February, 2022’s $161.45 billion and the decline was the steepest since peak pandemic-y April, 2020’s 25.52 percent. The March revisions? A 1.23 percent upgrade.
By contrast, services exports edged up in April by 0.22 percent (from $81.73 billion to $81.91 billion) – and set their fifteenth straight record in the process.
The April goods imports increase was the first since December, and at $262.22 billion came in at 2.01 percent higher than the March figure of $258.04 billion. But that number was downwardly revised by a considerable 1.10 percent.
In April, services imports decreased for the first time since last October, dipping by 0.64 percent. The drop was the biggest since January, 2022’s 1.72 percent, but as with most of these other trade figures, was surely affected by the major 2.13 percent revision (in this case, upward) of the March results.
Whereas the March trade figures were dominated by a more than ten-fold monthly jump in the surplus in petroleum products (by $6.40 billion), the results in this category played a less prominent role in the April data – with the surplus shrinking by 3.74 billion.
The April rebound in the combined goods and services trade deficit was led by a 12.19 percent widening of the non-oil goods deficit (which RealityChek regulars know can be called the Made in Washington trade deficit, because it consists of those trade flows most heavily influenced by U.S. trade deals and other policy decisions).
This surge in the Made in Washington deficit amounted to $10.89 billion, the new shortfall of $100.29 billion was the greatest since May, 2022’s $103.30 billion, and the increase was the biggest since the 20.74 percent burst in March, 2022.
These non-oil goods exports slipped from $146.58 billion to $141.73 billion (3.31 percent) and this third straight fall-off pushed the total down to its lowest level since March, 2022 ($142.09 billion).
Non-oil goods imports rose for the first time since December, and by 2.56 percent, from $235.97 billion to $242.01 billion.
RealityChek regulars also know that the Made in Washington trade data are useful because they’re a close proxy for China trade data. Therefore, they can shed light on the effectivensss of the high, sweeping tariffs imposed on imports from China by former President Donald Trump and overwhelmingly continued by President Biden.
The China goods deficit swelled by 22.12 percent in April – about twice as much as the non-oil goods deficit. And the increase from $16.61 billion to $20.28 billion was the biggest in percentage terms since it skyrocketed by 88.77 percent in April, 2020, as China’s economy continued its recovery from the first wave of the CCP Virus.
At the same time, this China goods gap was the second narrowest (after March’s $16.61 billion) since the $11.71 billion of March, 2020 – earlier in the recovery in the People’s Republic.
Goods exports to China drooped by 9.78 percent in April, from $14.18 billion to $12.79 billion. And goods imports advanced by 7.43 percent, from $30.79 billion to $33.08 billion. That total was the highest since January’s $38.25 billion and the biggest increase since the 8.18 percent recorded last August.
Over a longer (and therefore more informative) period, however, the effectiveness of the tariffs can’t be legitimately doubted. Chiefly, on a January through April (year-to-date, or YTD) basis, the U.S. goods trade deficit with China has plummeted by 38.17 percent. The global non-oil goods deficit is off by less than half that – 15.13 percent.
The chronic and immense manufacturing deficit worsened in April, but only modestly – by 3.48 percent, from $109.64 billion to $113.45 billion. The level was the highest since January’s $116.83 billion but well below the record (March, 2022’s $242.22 billion).
April manufacturing exports declined by fully 10.72 percent, from $116.60 billion to $104.100 billion.
That retreat – the biggest by far since pandemic-ridden April, 2020’s 30.15 percent nosedive – prevented the 3.84 percent decrease in manufacturing imports (from $226.24 billion to $217.55 billion) from narrowing the gap or even stabilizing it.
At the same time, the manufacturing deficit just may be turning a corner. On a YTD basis, this shortfall is running 10.92 percent behind last year’s ($439.97 billion versus $493.88 billion. If this trend continues, the yearly manufacturing deficit would decline for the first time since the semi-recessionary year 2009.
Also widening month-to-month in April was the trade gap in advanced technology products (ATP). The increase was 4.53 percent, from $14.31 billion to $14.96 billion.
ATP exports slumped by 12.43 percent, from a record $38.33 billion to $33.57 billion – the biggest decline since January, 2022’s 12.92 percent.
The larger amount of ATP imports drooped, too, with the 7.82 percent decrease (from $52.65 billion to $48.53 billion) representing the biggest monthly decrease also since January, 2022 (12.92 percent).
Geographically, other than with the China flows, the goods trade balance changes with the world’s biggest economies were pretty widely spread out.
The trade shortfall with the U.S.’ fellow signatories of the U.S.-Mexico-Canada Agreement (USMCA) shrank by 1.42 percent.
The goods deficit with the euro area grew by 4.59 percent.
And that with Japan was up by11.81 percent.
And as often the case, all these shifts were dwarfed by a huge (76.35 percent) surge in the often wildly volatile goods trade deficit with Switzerland.
Despite the aforementioned revisions-based uncertainties, however, this April U.S. trade report looks like the latest sign that after an encouraging period of economic growth accompanied by trade deficit shrinkage, the nation is reverting to its decades-long pre-CCP Virus pattern of growth spurring deficit expansion. And as suggested above, if the trend continues, it could usher in yet another stretch of dangerous bubble-ization.