Wednesday, April 13, 2005

Yesterday I reviewed the horror film which is the monthly US trade balance release and noted that all indications are that >$60bn deficits are the all-but-assured near-term future. This is not so much because of run-away oil prices or our insatiable desire for cheap clothes from China. It is instead because of the worryingly stagnant US export performance of late.

Over the past three months, US goods exports (SA) have been completely stagnant: $71.1bn, $71.1bn and $71.2bn respectively. The robust growth of 2004 during which goods exports grew 13% is � for the time being at least � just a memory. A closer look suggests this memory is only going to fade as dark clouds begin gathering around the edges of the US export picture, and thus the US trade balance, and thus the terribly imbalanced global economy.

You get a better view by looking at the top four export markets for US goods: Canada, the EU, Mexico and Japan. Country specific data is not seasonally adjusted, so they have to be taken with a grain of salt. Overall, SA goods exports rose 3.2%, but the drops in NSA exports to Canada, Mexico and Japan are much larger, so we can surmise that we�d still find an SA export decline if that data was available.

Let�s take them in order.

Canada

US exports to Canada have been stagnant to slightly declining since spring 2004, and the downward pace has really picked up since the fall. In the September-November 2004 period (which I�ll call �last fall�), US exports to Canada averaged $16.8bn per month, whereas for December 2004-February 2005 (which I�ll call �this winter�) they have averaged just $15.9bn � a 5.7% drop.

European Union

US exports to the EU have been stagnant: $14.7bn/mo. last fall, $14.8bn/mo. this winter. With growing German economic troubles, the return of French stagnation and even some clouds on the UK horizon, stagnancy is the best we can probably hope for into the near future.

Mexico

Things are even worse here than in Canada, where the export downturn has been particularly steep of late. Last fall monthly averages were $9.9bn; this winter just $9.1bn. That racks up an 8.1% decline in the country�s third largest export market. Latest news out of Mexico is that the country�s central bank has ended its tightening for this economic cycle, a sign that the export market will if anything be shrinking rather than expanding in coming months.

Japan

The story for US exports is probably worst in Japan. Last fall monthly averages stood at $4.7bn while this winter they fell to $4.2bn � a 10% decline. Even worse news is that the year-over-year export figures to Japan are completely stagnant � $4.2bn/mo. this winter, $4.2bn/mo. last winter. As Japan shows no evidence of decisively pulling out of its 10+ year economic funk, more declines are to be expected.

Canada, the EU, Mexico and Japan together absorb nearly two-thirds of total US exports. The export outlook for the US is pretty dark, which means of course that the East Asians are going to have to go on an incredible dollar-denominated asset eating spree to keep up with the swelling US trade deficit. With the Chinese economy apparently slowing down for real now, perhaps the time has finally come when Beijing will find the courage to change the peg and thus cut back on its (and Korea�s, Taiwan�s and Japan�s) need to devour US assets.

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