In August, the monthly trade deficit fell to $30.7 billion from $31.9 billion in July. We got improvement from both sides as exports rose by $0.2 billion to $128.2 billion and imports fell to $158.9 billion from $159.8 billion in July, a decrease of $0.9 billion. This reverses two months where the trade deficit rose slightly.
On the other hand, over the last year the trade deficit is down dramatically. A year ago our imports were $63.6 billion higher than now, at $222.6 billion, and our exports were $33.4 billion higher at $161.7 billion, resulting in a deficit of $60.9 billion.
While the year-over-year improvement in the trade deficit is very good news, the reason for it is not so good. It was a refection of the overall collapse in world trade, something that makes everyone poorer. As far as the GDP calculations are concerned, it does not make any difference -- a decline in the trade deficit is a decline in the trade deficit -- and it is something that feeds directly into the calculations.
However, it is not like there has been a big surge in people buying domestically produced
Fords (
F) rather than foreign produced
Hondas (
HMC). Rather, the fall in imports has been simply fewer people buying cars, period. Currently, for every dollar of goods and services we export, we import $1.24 -- down from $1.38 a year ago, but still way out of whack.
As the chart below shows (from http://www.calculatedriskblog.com/), a big part of our overall trade deficit comes from our addiction to foreign oil. The blue line shows the total trade deficit, while the black line shows the oil portion, and the red line shows everything else. Our overall trade deficit actually peaked (or hit bottom, as shown in the graph) at the end of 2005, and then went into a broad valley that lasted until last summer. That actually masked the underlying dynamics, as the non oil deficit actually started about the time the overall deficit first hit the valley floor, but the oil portion of the deficit soared along with the price of oil.
It was not until the price of oil crashed last fall that we started to see real improvement in the overall deficit. Now that benefit is largely gone. While the price of imported oil has a bit of a lag with the prices in the pits, there is clearly a relationship. The price of imported oil bottomed in February at $39.22 and was $64.75 in August.
