Slowing trade, falling prices

Foreign Trade

Exports of $142.8 billion and imports of $183.2 billion resulted in a November goods and services foreign-trade deficit of $40.4 billion, down from $56.7 billion in October. November exports were $8.7 billion less than October exports of $151.5 billion. November imports were $25.0 billion less than October imports of $208.2 billion.

While this decline in the trade deficit will have a good impact on the arithmetic of the national accounts, the fact that it came as a result of declines in production (exports) and consumption (imports) means the over all rating of the report is “mixed news,” at best. The Commerce Department will issue its next bulletin on goods and services trade on February 11.

Domestic trade

Retail and food services sales for December 2008, were $343.2 billion, a decrease of 2.7 percent from the previous month and 9.8 percent below December 2007. The previously-reported October-November 2008 change was revised from –1.8 percent to –2.1 percent.

Among all retailers, gasoline stations sales were down 35.5 percent from December 2007 and motor vehicle and parts dealers’ sales were down 22.4 percent over the year.

This is unambiguously a bad news report. The decline is big and accelerating from a downward revision of the previous month. Census will issue the next advance retail and food service sales report on February 12.

Foreign trade prices

The Import Price Index declined 4.2 percent in December, following decreases in each of the previous four months. Export prices also fell for the fifth consecutive month, declining 2.3 percent in December after a 3.4 percent drop the previous month.

Continued lower prices for both petroleum and non-petroleum prices in December contributed to the decrease in import prices. Overall, import prices fell 9.3 percent in 2008, the first year the index declined since 2001. The 2008 decrease was the largest in any calendar year since the index was first published in 1982.

Export prices fell 2.3 percent as both agricultural and nonagricultural prices declined in December. Prices for exports were down 7.5 percent in the last quarter of 2008, the largest three-month decrease since the index was first published in 1983. Export prices declined 3.2 percent in 2008, the first calendar year drop since 2001 and the largest since 1998.

While consumers may enjoy some relief from these numbers and the slower relative decline of export prices is vaguely suggestive of an improvement in the terms of trade, the magnitudes of price decline are far too big to be interpreted as anything other than bad news. BLS will issue its next report on international prices on February 18.

Domestic business

The combined value of distributive trade sales and manufacturers’ shipments for November was $1,057.0 billion, down 5.1 percent from October 2008 and down 8.9 percent from November 2007.

Manufacturers’ and trade inventories at the end of November were $1,485.1 billion, down 0.7 percent from October 2008, but up 3.3 percent (±0.5%) from November
2007.

The total business inventories/sales ratio at the end of November was 1.41 (based on seasonally adjusted data). The November 2007 ratio was 1.24 and the ratio in October 2008 was 1.34.

The only glimmer of not-bad news in this release was the very modest decline in inventory levels. The fact that such a fall came in the context of widespread sales and shipment declines puts this release pretty firmly in the “bad news” category. Census will release its next business sales and inventories report on February 12.

Over the past few business days, the Federal statistical system has disgorged three reports with bad or very bad news versus one with mixed news (if viewed optimistically). As a result the good news index (GNI) is now running at 10.0 percent in January.

The mix of reference months in today’s summary brings up another interpretive nuance. What little good news there was in this packet of reports came in November’s slight narrowing of the trade deficit. The other “mixed” report in the index so far referred to retailers’ financial statements for the third quarter of last year. Thus, the GNI is largely a measure of the perceptions of the economy that are being placed in the public consciousness in a particular month. An extension of the GNI concept might key the time coding to the reference period rather than the release date; film at 11:00.