May Trade Deficit Shrinks A Little - June Figures Expected To Jump On Oil Consumption

Wednesday, July 13, 2005

While the headline number for the May US trade deficit, down 1.55 to 55.35 billion dollars, looked encouraging, scrutinizing the data tables results in a sobering experience. The slight improvement can be traced back to a price decrease in the average cost of crude oil to 43,08 (44,76) dollars, a marginally improved surplus of 5.38 (5.12) billion dollars in the services sector, higher food exports of 5.6 (5) billion dollars and higher exports of consumer goods where a good part of the improvement from 9.29 to 9.72 billion dollars came from arts and antique sales, not exactly a production sector. The goods deficit with China increased to 15.8 (14.7) billion dollars, the same deficit with the EU rose to 10.5 (9.3) billion.

nyc sewer made in china

PHOTO: A good part of the trade deficit is Made in China.
The US' obsession with consuming gets confirmed when looking at the import data. Capital goods imports (ex automotive) declined month-on-month to 31.36 (31.94) billion dollars whereas consumer goods imports rose to 34 (33.76) billion dollars. While the trend in consumer goods imports is a steady one, the reduction of capital goods imports reflects a changing pattern. Figures for Advanced Technological Products show a continuing rise of imports and a three-month drop in exports, resulting in a cumulative deficit of 14.66 (Jan-May 2004: 9.02) billion dollars.

US Trade Deficit May 2005

The automotive sector was of no help to the trade figures either. Higher exports with a volume of 8.88 (8.44) billion dollars were more than offset by imports with a value of 20.04 (19.36) billion dollars.
Altogether this most recent set of data does not allow for any complacency. Expect the June trade deficit to be higher because of the seasonal spike in oil consumption. Last year crude imports surged 8.5 percent from May to June, resulting in a 1.1 billion dollar higher oil bill. As monthly oil imports in 2005 have not deviated much from the previous year's monthly figures it can be assumed that the consumption pattern will not have changed much in June despite the steady price rises at the gas pumps.
UPDATE: The BLS released import and export prices for June (pdf). Import prices rose one percent after falling the same a month earlier while export prices were unchanged after falling 0.2 percent in May. This and oil holding above 60 dollars may be taken as a first indication for a worsening trade deficit.

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