Five Things to Look for in the International Trade Report

In All, Business by Tola Brennan

At 8:30 AM on May 4th, the Commerce Department will release its monthly trade report. It takes a little over a month for it to come together and this next release with detail imports and exports for March 2016. An advance report with a preliminary numbers is released a week early. Published on April 27th, it gives a few hints of what to expect.

1 – Check For Falls in Trade Flows

While the main boldface number will be the trade deficit, the total imports and exports that it derives from provide more interesting information. Since the 1970s, the US has imported quite a bit more than it exports and the trade deficit number bounces around to reflect that. In other words, the deficit expresses how much more we import than export, but the actual amounts tell us how well this part of the economy is doing.

The advance report suggests sizeable drops in both imports and exports. If it’s confirmed, the March numbers will be especially interesting. We’ve seen about two years of little drops as trade volumes have stuttered. But then last month, it looked like February bucked the trend with a bump up of $1.8 billion in exports and $3 billion in imports. A fall in March would give more weight to a perception of continued decline.

Tomorrow will “be a reality check to see what really happened,” said Dr. Michael Englund at Action Economics. But he warns that final numbers can be very different than preliminaries. Still “these are little red flags we’ll be looking to confirm” he said.

2 – Drill Into The Drops

The advance report breaks imports and exports down into general categories like industrial supplies, automotives or consumer goods. Tomorrow’s release gives precise figures on a product basis. Looking at where the biggest changes are happening gives a sense of the underlying influences on trade.

The advance report suggests typical small declines in most areas except for consumer goods which showed sizable drops in exports and especially imports. This means low consumer demand and is a bad sign for the economy.

“People are worried,” said Robert Brusca at Fact and Opinion Economics. He explained that this shows more saving and less confidence in a continued recovery.

3 – Watch the Services

Easily overlooked in the furor over the trade deficit, the US has been running a sizeable service surplus for quite a while. February’s surplus was $17.7 billion. While it’s fallen slightly over the last two years of oil troubles, movement here will hint at future action. Many oil producing countries look for US financial and insurance services and with slight recoveries in oil prices, those areas could rebound.

Englund is confident this bottomed out in late 2015. “We’ve since been clawing back so this might be dissipation of the oil price shock,” he said. And it’s not limited to services. Englund said that competition for efficient extraction methods put the US at an advantage against OPEC countries. Now they need US innovations to compete again.

Tomorrow’s report details service exports on a country basis and could hint at eventual boosts in industrial exports.

4. – Peek Into China

The winter months tend to be slow for China every year. It’s because of the series of holidays. So seasonal patterns and worries of weakness in the market are hard to differentiate. Until now.

“March is the month where we see the recovery from the Chinese new year,” said Englund. “If we see a big bounce that will trim the notion that there’s a panic going on in China.”

In other words, despite signs of a slowdown in China over the last few months, checking the trade deficit with them will finally start to answer the question a little more definitively. If volumes rise, it’s probably a sign of recovery.

5 – Eyes on the Fed

Look at these likely declines in context. A possible weak showing in this report comes after a sequence of similar reports. While trade numbers are volatile and bounce around a lot, they’re almost a third of GDP.

Brusca, formerly an economist at the New York Federal Reserve, is certain the Fed is watching these reports closely. But not necessarily fitting them into policy.

“We’ve got a Federal Reserve that is itching to raise interest rates,” he said. Brusca sees them changing their minds too often on timing. “At the end of March, Janet Yellen seemed to be worried about the international economy,” he said. “But now they’ve turned optimistic.”

For him it doesn’t add up and he calls them “dogmatic.” While Individual months don’t change policy, sluggish trade and an emphasis on raising rates from the Fed means keeping tabs on this divergence might give a forecast of future pressures.