September Trade Deficit Smashes June Record by 10.5%

The September trade deficit smashed the record set just last June.

September 2021 charted a total trade deficit of -$80.9 billion. That was up a massive 11.2% over the August trade deficit of -$72.8 billion and crushed the previous June record of -$73.2 billion by over 10.5%.

The new record was driven by Goods. The Goods deficit increased 10% MoM from $89.2B to $98.2B. The Services Surplus actually increased for the first time since May, up 4.8% from $16.4B to $17.2B.

The new Goods record came from both sides of the equation. Imported Goods came in at -$240B edging out the June value of -$239.17. A large fall in Goods Exported from $145B in June to $142.7B combined for the new record Net Goods deficit.

It’s possible the large fall in Exported Goods could be related to shutdowns from the Delta variant. Coming months will show whether this was an anomaly or a more worrying trend.

Figure: 1 Monthly Plot Detail

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

• The MoM change was driven by exports falling by $7B against increased Imports of $2B
  • While both Service components worked in favor of the US, both Goods components worked against the US

Looking at Trailing Twelve Month:

• The Total Net deficit has surged 37.3% from $608B in Sept 2020 to $835B.
• Even looking pre-Covid, the TTM deficit is up 37.8% from the $606B in Sept 2019
  • The Total Net surge is due to Imported Goods increasing by $187B with exported goods only increasing $10B
  • Imported Services is still down $82B from the pre-Covid peak, but Exported Services is down $130B

The surging trade deficit is being attributed to the US recovering faster than every other nation and thus having more money to demand imported goods. The current theory states that as the rest of the world also recovers, the gap will close as US Exported Goods rebounds. But this has been the excuse for months, and the numbers keep getting worse!

The US has maintained a surplus in Services for decades, even increasing the Net Services figure since 2008. The trend has changed since 2018 (see line chart below). If this does not reverse it will provide a stronger tailwind to increasing Total Net Trade Deficits in the months and years ahead.

To really demonstrate the effect, consider that in Dec 2019 Net Goods Deficit of -$69.2B was offset by a Net Services Surplus of $23.8B. In the most recent month, the Goods Deficit is -$98.2B vs only $17.2B offset in Net Services Surplus. The ratio has more than doubled from 2.8 to 5.7!

Figure: 2 Trade Balance Detail

Historical Perspective

Zooming out and focusing on the Net numbers shows the longer-term trend. This plot demonstrates just how much larger the Goods deficit is compared to the Services surplus. As mentioned above, the Services surplus has been declining since Jan 2018. For Goods, the massive spike down on the far right shows how dramatic the month of September is relative to history.

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 27% in the most recent month.

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 -$835B is the largest ever, having exceeded the record set last month of $817B.

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 3.6% 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. 2021 can clearly be seen as having bent the trend in a more steeply downward sloping direction.

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: Nov 04, 2021 for Sep 2021

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