June Trade Deficit Sets New Record of $75.7 Billion
The US Trade Balance shows the deficit and surplus of US trade for Imports and Exports. A deficit occurs when imports are greater than exports. When the Trade Balance is in deficit (which it has been for decades), it accounts for one of the two components of the Twin Deficits. The Fiscal Deficit accounts for the other component and was reviewed in a previous article.
TTM = Trailing Twelve Months
June 2021 saw a total trade deficit of -75.7B which was up 6.7% over May’s -71B and even eclipsed the record -75B trade deficit from March 2021. The plot below shows Imports, Exports, and Net figures (lines) over the last 18 months. The impact of the Covid lockdowns can be seen in the dip in early 2020. Goods Exports and Imports have exceeded the Dec 2019 values, but Services on both sides are still below the pre-Covid levels.
Figure: 1 Monthly Plot Detail
The table below provides a deeper look into the numbers. Some key takeaways:
- The YoY change is up nearly 30% across every category due to the Covid recovery
- The ONLY YoY and MoM value falling is the Net Services which means the US Services Surplus is falling
- Looking at Trailing Twelve Month:
- The Total Net deficit has surged 33.5% from 609B to 813B. This represents a massive increase in the TTM trade deficit
- The Total Net surge is due primarily to Imported Goods increasing by 60B while Exported Goods has decreased by 80B when comparing 2021 to 2019
- Looking at the gross numbers, the only category that has increased from 2019 is Imported Goods
- Net Services has also seen a big decline of 22% falling over 50B from 287B to 223B since 2019
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.
While it is too early to confirm or reject this theory, there is no doubt the fiscal stimulus checks gave US consumers extra cash to buy imported goods. With fiscal stimulus having now run out, and US consumers potentially facing a declining dollar, it will be interesting to see how imported goods are affected in the months ahead.
Another figure to continue monitoring is the Services line item. 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 93.2B vs only 17.4B offset in Net Services Surplus. The ratio has almost doubled from 2.8 to 5.4!
Figure: 2 Trade Balance Detail
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.
Figure: 3 Historical Net Trade Balance
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 -812B is the largest ever, having strongly exceeded the record set in May of 787B, which was the largest since September 2006 of 779B.
Figure: 4 Trailing 12 Months (TTM)
Although the Net dollar deficits are hitting all-time records, they 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.
Figure: 5 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: 6 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: Aug 05, 2021 for Jun 2021