Data Anomaly Causes October Trade Deficit to Shrink

The October trade deficit fell but the drop was primarily due to a data anomaly.

October 2021 charted a total trade deficit of -$67.1 billion. It was the lowest trade deficit since April 2021. Month-on-month, the trade deficit fell 17% from the record set in September.

The falling trade deficit can be better understood by taking a closer look at the data.

August Exported Goods came in at $150B and fell to $143B in September. October made up the difference, with Exported Goods increasing to $158B. Over the past three months, Exported Goods have averaged $150.5B.

Thus, the record trade deficit in September would have been a smaller record of $74B and would have been eclipsed by a record $75B in October if Exported Goods are averaged over the three months. The dip can be seen in the dark blue bars below.

The Trade Deficit is growing by about $1B on average each month.

Figure: 1 Monthly Plot Detail

The table below provides a deeper look into the numbers. Some key takeaways:

• Exported Goods of $158B is $16B (10%) above the TTM avg of $142B
  • Clearly an outlier
• All other figures saw modest increases month over month
  • The Net Services surplus increased slightly 1.7% MoM from $16.5B to $16.8B

Looking at Trailing Twelve Month:

• The Total Net Deficit of $838.3B is still a record despite the data anomaly
• The TTM Services Surplus has fallen from $283B in 2019 to $255B in 2020 and down again in 2021 to $230B
  • A shrinking Services Surplus will be a tailwind to higher deficits in the future

The data anomaly represents about $8B in Exported Goods from September being pulled into October. Regardless, September has become the new high-water mark for a record trade deficit. Considering an estimated actual trade deficit of $75B in October and a current trend of $1B monthly increases, this $81B “record” will probably fall in 2022.

Figure: 2 Trade Balance Detail

Historical Perspective

Zooming out and focusing on the Net numbers shows the longer-term trend and demonstrates why Trade Deficit records will continue unabated. This plot also shows how much larger the Goods deficit is compared to the Services surplus. The Services surplus has been declining since Jan 2018. For Goods, the spike down and reversal on the far right shows the data anomaly in action.

Figure: 3 Historical Net Trade Balance

The chart below zooms in on the Services Surplus to show just how quickly it has dropped in recent months. It compares Net Services to Total Exported Services to show relative size. After hovering near 35% since 2013, it sits at 26% in the most recent month. This is being driven by Imported Services rising much faster than Exported Services.

Figure: 4 Historical Services Surplus

To put it all together and remove some of the noise, the next plot below shows the Trailing Twelve Month (TTM) values for each month (i.e., each period represents the summation of the previous 12 months). This latest 12-month period of -$838B is the largest ever, having exceeded the record set last month of -$835B (despite the data issue).

Figure: 5 Trailing 12 Months (TTM)

Although the Net Trade Deficits are hitting all-time records in terms of dollars, it can be put in perspective by comparing the value to US GDP. As the chart below shows, the current records are still below the 2006 highs before the Great Financial Crisis.

That being said, the trend has reversed strongly, reaching 3.62% in the latest month.

Figure: 6 TTM vs GDP

Finally, to compare the calendar year with previous calendar years, the plot below shows the Year to Date (YTD) figures for each year through the current month. 2020 can clearly be seen as having bent the trend in a more steeply downward sloping direction (black line).

Figure: 7 Year to Date

What it means for Gold and Silver

The Trade Deficit matters for gold and silver because it shows how much the US is importing in exchange for US Dollars. A trade deficit means that the difference has to be made up with dollars rather than Goods and Services. Think about trading in a used vehicle for a new one. Because the old car is not as valuable as the new car, the customer must make up the difference with cash. The US exports are not as valuable as the imports coming into the US; thus, the difference is made up by sending dollars abroad to trading partners.

Not only does this demonstrate a weak economy that consumes more than it produces, but it means the supply of dollars around the world continues to grow. With more dollars circulating internationally, it puts downward pressure on the US dollar exchange rate when compared to other currencies. As the dollar loses value in the global economy, it supports the price of commodities measured in dollars, specifically hard currency like gold and silver.

Data Source: https://fred.stlouisfed.org/series/BOPGSTB

Data Updated: Monthly on one month lag

Last Updated: Dec 07, 2021, for Oct 2021

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