Dramatic boost in consumer goods imports and exports and a higher trade deficit suggest that months of steadily falling international trade amounts are finally at an end.
Consumer goods imports increased $3.6 billion in February to $51.5 billion, according the Commerce Department’s monthly international trade report. Exports of consumer goods increased by $1 billion in February to $17 billion.
The trade deficit increased in February to $47.1 billion, up $1.2 billion from the revised $45.9 billion for January.
“On the surface what you see is a larger trade deficit and most people see a negative,” said Jerry Morelock at Capital Economics. “This is actually a really positive report.”
The low price of oil, headwinds in the global market and a strong dollar meant late 2015 and January 2016 produced disappointing trade volumes, a sign of weakness in manufacturing and an overall low demand for American goods and services abroad.
International trade makes up a sizable portion of the US economy, so these figures have stoked fears of recession when combined with unimpressive showings in recent jobs reports.
“This is the turning point,” Morelock said, drawing a parallel to January 2015 when the year started panicked but eventually stabilized. “There were a lot of people shouting that we’re hitting a recession. To me it’s really the same story here.”
He said increased exports show renewed activity globally while high imports mean strong domestic demand is returning. While the import boost drags on GDP, Morelock sees the influence evening out by later in the year.
“Everything is gonna be fine,” he said.
February imports were $225 billion, $3 billion more than last month. This is after steady volatile drops since January 2015 – though still far from the high point of $240 billion in December 2014.
Exports were up $1.8 billion from last month to $178 billion after steady drops since October 2014. There have been small rebounds before, so the March numbers will confirm the significance of the boost.
“Very low growth that is likely to dissolve first quarter does raise some red flags,” said Ryan Sweet at Moody’s Analytics, who takes a more cautious view. Sweet puts more weight in the underwhelming jobs report, with 215,000 jobs added.
But he said another underlying issue plays into the last few months that throws off estimates.
“The inventory build in the US over the past year or so has been significant and unsustainable,” he said. “Now businesses are realizing they need to cut back on their inventory accumulation and therefore they’re importing fewer goods.”
He said this overbuying slowed late last year, and that February’s high imports are a return to normal. He expects more low numbers because of this offset working itself out. “This whole process is going to take several more months to run its course,” he said.
If he’s right, then the trade has been artificially low and the coming months should show incremental boosts.
“In recent years, businesses are much better able to control inventory management,” said Lindsey Piegza at Stifel Nicolaus, who takes these encouraging numbers with a grain of salt. Of 67 economists polled by Bloomberg, Piegza’s estimate at $47 billion was almost precisely on the mark.
“If anything this will calm some of the concerns that the consumer has fallen off the cliff,” she said. “But it’s really too soon to say this is indicative of a much stronger economy.”
She points to the jobs report to bolster her view. “If we have 200,000 back in 2005 that would be disappointing,” she said. “But now that’s our base case scenario.”
Piegza said the revisions are common in cases like this and the high import numbers might end up much smaller when there’s been more time to review the data.
“There is certainly a lot of concern about the health of the economy,” she said. “Any data point that supports the opposite, the more positive view is favorable.”
February’s report breaks a downtown and sends the early signs of a more thorough recovery, but confirmation of the trend will have to be borne out by other data points.
Originally published in the Invisible Hand